Bank Underwriting of Debt Securities: Modern Evidence

Posted: 11 Feb 1997

See all articles by Amar Gande

Amar Gande

Southern Methodist University (SMU) - Finance Department

Manju Puri

Duke University - Fuqua School of Business; NBER; FDIC

Anthony Saunders

New York University - Leonard N. Stern School of Business

Ingo Walter

New York University - Leonard N. Stern School of Business; New York University (NYU) - Department of Finance

Date Written: October 1996

Abstract

This paper examines recent evidence on the characteristics and pricing of debt securities underwritten by Section 20 subsidiaries of U.S. commercial bank holding companies relative to those underwritten by investment houses. Our results show that Section 20 underwritings of lower-credit rated firms in which the bank has a lending stake, results in relatively higher prices (lower yields). We find no evidence of conflicts of interest in situations where one would expect large conflicts ex-ante, e.g., where the purpose of the bank underwriting is to repay existing bank debt. The results are generally consistent with the view that when banks underwrite debt securities of firms to which they lend (through their commercial banking affiliate) there is a net certification effect present. We also find that Section 20 subsidiaries bring a relatively larger proportion of smaller sized issues to the market than investment houses. Thus, contrary to the contention that greater universal banking powers will stunt the availability of finance to smaller firms we find support for the view that bank underwriting is net beneficial to smaller firms.

JEL Classification: G21, G24

Suggested Citation

Gande, Amar and Puri, Manju and Saunders, Anthony and Walter, Ingo, Bank Underwriting of Debt Securities: Modern Evidence (October 1996). Available at SSRN: https://ssrn.com/abstract=8097

Amar Gande

Southern Methodist University (SMU) - Finance Department ( email )

United States
2147681945 (Phone)
2147684099 (Fax)

Manju Puri (Contact Author)

Duke University - Fuqua School of Business ( email )

100 Fuqua Drive
Box 90120
Durham, NC 27708-0120
United States
919-660-7657 (Phone)

NBER

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

FDIC ( email )

550 17th Street NW
Washington, DC 20429
United States

Anthony Saunders

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
9-190, MEC
New York, NY 10012-1126
United States
212-998-0711 (Phone)
212-995-4220 (Fax)

Ingo Walter

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
New York, NY 10012
United States
212-998-0707 (Phone)
212-995-4220 (Fax)

New York University (NYU) - Department of Finance

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

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