Conflict of Interest or Certification? Evidence from IPOs Underwritten by the Firm's Relationship Bank

37 Pages Posted: 15 Oct 2004 Last revised: 3 Jun 2009

See all articles by Luca Benzoni

Luca Benzoni

Federal Reserve Bank of Chicago - Research Department

Carola Schenone

University of Virginia - McIntire School

Date Written: January 12, 2009

Abstract

We examine the long-term return performance and fundamental valuation of IPOs underwritten by relationship banks. We find that over one- to three-year horizons these IPOs yield returns similar to those on IPOs underwritten by non-relationship banks. Moreover, we show that there is selection among firms that go public with their relationship bank. Investors value these new issues higher than similar IPOs underwritten by non-relationship banks. These findings support the certification role of relationship banks and suggest that, in this respect, the effect of the 1999 repeal of Sections 20 and 32 of the Glass-Steagall Act has not been negative.

Keywords: Conflicts of interest, lending relationships, IPOs, Glass Steagall Act

JEL Classification: G20, G21, G24, G30

Suggested Citation

Benzoni, Luca and Schenone, Carola, Conflict of Interest or Certification? Evidence from IPOs Underwritten by the Firm's Relationship Bank (January 12, 2009). FRB of Chicago Working Paper No. 2007-09. Available at SSRN: https://ssrn.com/abstract=603982 or http://dx.doi.org/10.2139/ssrn.603982

Luca Benzoni

Federal Reserve Bank of Chicago - Research Department ( email )

230 South LaSalle Street
Chicago, IL 60604
United States
312-322-8499 (Phone)

HOME PAGE: http://lbenzoni.frbchi.googlepages.com/

Carola Schenone (Contact Author)

University of Virginia - McIntire School ( email )

Rouss and Robertson Halls
125 Ruppel Drive
Charlottesville, VA 22903
United States
434-924-4184 (Phone)

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