The Benefits of Investment Banker Directorships

43 Pages Posted: 20 Sep 2004

See all articles by Murali Jagannathan

Murali Jagannathan

SUNY at Binghamton - School of Management

Srinivasan Krishnamurthy

North Carolina State University - Poole College of Management

Date Written: December 2004

Abstract

We document that investment banker directorships are mutually beneficial to the investment bank and the firm. Investment bankers serve on boards of larger, higher growth firms. These firms benefit from lower gross spreads and smaller underpricing when issuing equity, and raise more external capital. The benefits are often larger when top-tier investment bankers serve as directors. Firms with investment bankers are also less financially constrained. This result is robust to controlling for self-selection. The affiliated investment bank benefits by underwriting a larger fraction of the firms' securities issues, but does not appear to extract monopoly rents in the form of higher fees. Our results are consistent with firms selecting specialist directors with complementary expertise that benefits both the firm and the investment bank.

Keywords: Financing Constraints, SEO underpricing,Underwriting Fees, Investment Bankers, Board of Directors

JEL Classification: G31, G32, D92, E22

Suggested Citation

Jagannathan, Murali and Krishnamurthy, Srinivasan, The Benefits of Investment Banker Directorships (December 2004). Available at SSRN: https://ssrn.com/abstract=592882 or http://dx.doi.org/10.2139/ssrn.592882

Murali Jagannathan (Contact Author)

SUNY at Binghamton - School of Management ( email )

P.O. Box 6015
Binghamton, NY 13902-6015
United States
607-777-4639 (Phone)

Srinivasan Krishnamurthy

North Carolina State University - Poole College of Management ( email )

Hillsborough Street
Raleigh, NC 27695-8614
United States

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