Commercial Banks Getting Underwriting Business: Tying or Relationship Building?

52 Pages Posted: 26 Mar 2008 Last revised: 5 Dec 2012

Date Written: October 1, 2009

Abstract

This paper investigates how commercial banks can use lending to attract underwriting business from loan clients. The empirical evidence in this paper indicates that rather than using less credit and higher spreads to punish firms that do not give them underwriting business (i.e., coercive tying), banks use more credit and lower spreads as incentives for firms to give them future underwriting business. Further, banks that continue business relations by lending again to firms are rewarded with a higher probability of getting future underwriting business of the firm. The evidence found in this paper does not support recent concerns of “tying” behavior by banks. Rather, the evidence suggests that banks use discounted lending to attract underwriting business. The empirical evidence in this paper indicates that the ability to lend may have an impact on how investments banks compete for underwriting business.

Keywords: Universal banking, Tying, Conflict of interest, Underwriting

JEL Classification: G21, G24

Suggested Citation

Krishnan, Karthik, Commercial Banks Getting Underwriting Business: Tying or Relationship Building? (October 1, 2009). EFA 2006 Zurich Meetings Paper, Available at SSRN: https://ssrn.com/abstract=890844 or http://dx.doi.org/10.2139/ssrn.890844

Karthik Krishnan (Contact Author)

Northeastern University ( email )

360 Huntington Avenue
414C Hayden Hall
Boston, MA 02115
United States
617-373-4707 (Phone)

HOME PAGE: http://www.northeastern.edu/kkrishnan

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