Conflicts of Interest, Intermediation, and the Pricing of Underwritten Securities.

Posted: 4 Aug 1999

See all articles by Manju Puri

Manju Puri

Duke University - Fuqua School of Business; NBER; FDIC

Date Written: October, 1994

Abstract

The paper models securities underwriting where the intermediaries (commercial banks and investment houses) have diverse conflicts of interest leading to differential pricing of securities. When underwriting securities, investment houses have an incentive to underinvest in costly information production. Banks obtain such information from loan monitoring, but have an incentive to misrepresent this information because of bad loan exposure to the issuing firm. Either situation leads to a potential conflict of interest. The paper finds circumstances where banks' underwritings benefit issuers through higher realised prices. It further finds sufficient conditions for banks and investment houses to co-exist. The model also yields new testable implications, in particular, banks are likely to have a pricing advantage for junior and information sensitive securities even when both intermediaries have similar reputations ex-ante.

JEL Classification: G11

Suggested Citation

Puri, Manju, Conflicts of Interest, Intermediation, and the Pricing of Underwritten Securities. (October, 1994 ). Available at SSRN: https://ssrn.com/abstract=5803

Manju Puri (Contact Author)

Duke University - Fuqua School of Business ( email )

100 Fuqua Drive
Box 90120
Durham, NC 27708-0120
United States
919-660-7657 (Phone)

NBER

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

FDIC ( email )

550 17th Street NW
Washington, DC 20429
United States

Register to save articles to
your library

Register

Paper statistics

Abstract Views
916
PlumX Metrics