Scaling the Hierarchy: How and Why Investment Banks Compete for Syndicate Co-Management Appointments
46 Pages Posted: 15 Sep 2005
Date Written: August 10, 2007
We investigate why banks pressured research analysts to provide aggressive assessments of issuing firms during the 1990s. This competitive strategy did little to directly increase a bank's chances of winning lead-management mandates and ultimately led to regulatory penalties and costly structural reform. We show that aggressively optimistic research and even the mere provision of research coverage for the issuer (regardless of its direction) attract co-management appointments. Co-management appointments are valuable because they help banks establish relationships with issuers. These relationships, in turn, substantially increase their chances of winning more lucrative lead-management mandates in the future. This is true even in the presence of historically exclusive banking relationships. If recent regulatory reforms compromise this entry mechanism, they may have the unintended consequence of diminishing competition among securities underwriters.
Keywords: Underwriting syndicates, Commercial banks, Glass-Steagall Act, Global Settlement, Analyst behavior
JEL Classification: G21, G24
Suggested Citation: Suggested Citation