Do Bank Relationships Affect the Firm's Underwriter Choice in the Corporate-Bond Underwriting Market?

Abstract

This paper studies the effect of bank relationships on underwriter choice in the U.S. corporate-bond underwriting market following the 1989 commercial-bank entry. I find that bank relationships have positive and significant effects on a firm's underwriter choice, over and above their effects on fees. This result is sharply stronger for junk-bond issuers and first-time issuers. I also find that there is a significant fee discount when there are relationships between firms and commercial banks. Finally, I find that serving as arranger of past loan transactions has the strongest effect on underwriter choice, whereas serving merely as participant has no effect.

Keywords: Investment Banking, Universal Banking, Bank Relationships, Underwriting Market, Bank Competition

JEL Classification: G21, G24, G28, G10, G30, L11, L13, L14, L50, L89