The Benefits of Investment Banker Directorships
43 Pages Posted: 20 Sep 2004
Date Written: December 2004
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: Suggested Citation