Bank Relationships and Underwriter Competition: Evidence from Japan

Abstract

This paper examines the effects of bank relationships on underwriter choice in the Japanese corporate-bond market following the 1993 deregulation. Bank relationships have significant positive effects on a firm's underwriter choice. Relationship firms receive a small but significant fee discount and, consistent with mitigating effect of bank competition on holdup cost, multiple-relationship firms receive a significantly deeper discount than solo-relationship firms. Bank shareholding alone negatively affects underwriter choice, whereas shareholding together with loans have significantly more positive effects than loans alone. Finally, existing relationships reduce a Japanese firm's switching probability by 32%, in contrast to only 6% for U.S. firms.

Keywords: Bank Relationships, Bank Shareholding, Investment Banking, Universal Banking, Bank Competition, Underwriting Market, Comparing Financial Systems

JEL Classification: G21, G24, G10, G30, L11, L13, L14, L50, L89