Scaling the Hierarchy: How and Why Investment Banks Compete for Syndicate Co-Management Appointments

46 Pages Posted: 15 Sep 2005  

Alexander Ljungqvist

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Research Institute of Industrial Economics (IFN)

Felicia C. Marston

University of Virginia - McIntire School of Commerce

William J. Wilhelm

University of Virginia - McIntire School of Commerce

Multiple version iconThere are 4 versions of this paper

Date Written: August 10, 2007

Abstract

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

Ljungqvist, Alexander and Marston, Felicia C. and Wilhelm, William J., Scaling the Hierarchy: How and Why Investment Banks Compete for Syndicate Co-Management Appointments (August 10, 2007). Available at SSRN: https://ssrn.com/abstract=800184 or http://dx.doi.org/10.2139/ssrn.800184

Alexander Ljungqvist (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
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HOME PAGE: http://pages.stern.nyu.edu/~aljungqv

National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR)

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European Corporate Governance Institute (ECGI)

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Belgium

Research Institute of Industrial Economics (IFN) ( email )

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Stockholm, SE-102 15
Sweden

Felicia C. Marston

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States
804-924-1417 (Phone)

William J. Wilhelm

University of Virginia - McIntire School of Commerce ( email )

Rouss & Robertson Halls, East Lawn
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Charlottesville, VA 22904-4173
United States
434-924-7666 (Phone)
434-924-7074 (Fax)

HOME PAGE: http://gates.comm.virginia.edu/wjw9a/

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