Investment Bank Governance and Client Relationships

55 Pages Posted: 26 Dec 2018 Last revised: 11 Apr 2023

See all articles by Zhaohui Chen

Zhaohui Chen

University of Virginia - McIntire School of Commerce

Alan D. Morrison

University of Oxford - Said Business School; University of Oxford - Merton College

William J. Wilhelm

University of Virginia - McIntire School of Commerce

Yuchi Yao

Simon Business School, University of Rochester

Date Written: December 5, 2018

Abstract

The relational contract at the heart of an investment banking relationship is valuable because it engenders and requires mutual trust in a setting where conflicts of interest are significant and are not easily resolved through formal contract. But a bank’s ability to commit to a relational contract depends on internal governance mechanisms that align the interests of individual bankers with those of the bank. We argue that increasing complexity in investment banks weakens internal governance and estimate a causal model that indicates that the likelihood of a relationship being broken is increasing in bank complexity.

Keywords: relational contract, investment banking

JEL Classification: G24

Suggested Citation

Chen, Zhaohui and Morrison, Alan and Wilhelm, William J. and Yao, Yuchi, Investment Bank Governance and Client Relationships (December 5, 2018). Available at SSRN: https://ssrn.com/abstract=3296347 or http://dx.doi.org/10.2139/ssrn.3296347

Zhaohui Chen (Contact Author)

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States
434-243-1188 (Phone)

Alan Morrison

University of Oxford - Said Business School ( email )

Department of Finance
Park End Street
Oxford OX1 1HP
United Kingdom
+44 18 6527 6343 (Phone)
+44 18 6527 6310 (Fax)

University of Oxford - Merton College

Merton Street
Oxford OX1 4JD
United Kingdom
+44 18 6527 6343 (Phone)

William J. Wilhelm

University of Virginia - McIntire School of Commerce ( email )

Rouss & Robertson Halls, East Lawn
P.O. Box 400173
Charlottesville, VA 22904-4173
United States
434-924-7666 (Phone)
434-924-7074 (Fax)

HOME PAGE: http://gates.comm.virginia.edu/wjw9a/

Yuchi Yao

Simon Business School, University of Rochester ( email )

Rochester, NY 14627
United States

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