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Do bank bailouts have an impact on the underwriting business?

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  • Carbó-Valverde, Santiago
  • Cuadros-Solas, Pedro J.
  • Rodríguez-Fernández, Francisco

Abstract

We explore the effects of bank bailouts on competition in the underwriting business. We exploit a sample of underwriters active in the European corporate bond markets from 2006 to 2013 and find that reputable underwriters suffer market share losses (of 12.43 %) after being bailed out. However, the market share of non-reputable underwriters is found to increase after a bail out. An exploration of the firm–bank underwriting matching reveals that the probability of being chosen as underwriter in a given deal decreases for reputable bailed-out banks, while it increases for non-reputable bailed-out banks. These results provide evidence of the effects of bailouts on underwriting competition. The economic impact depends on the ex-ante reputational capital of the bailed-out bank.

Suggested Citation

  • Carbó-Valverde, Santiago & Cuadros-Solas, Pedro J. & Rodríguez-Fernández, Francisco, 2020. "Do bank bailouts have an impact on the underwriting business?," Journal of Financial Stability, Elsevier, vol. 49(C).
    • Handle: RePEc:eee:finsta:v:49:y:2020:i:c:s1572308920300553
    DOI: 10.1016/j.jfs.2020.100756
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    7. Cuadros-Solas, Pedro J. & Salvador, Carlos & Suárez, Nuria, 2021. "Am I riskier if I rescue my banks? Beyond the effects of bailouts," Journal of Financial Stability, Elsevier, vol. 56(C).

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    Keywords

    Underwriters; Bailout; Reputation; Recapitalization;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

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