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The role of investor protections on the value of investment banking relationships: International evidence

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  • Gao, Ya
  • Liao, Chi
  • Zhang, Ying
  • Zhang, Zixu

Abstract

This paper examines the role of country-level investor protections on the value of relationships between investment banks (IBs) and their corporate clients. Using an event-study approach and an international sample of consolidation activities in the investment banking industry, we document that clients of target IBs acquired by banks from stronger (weaker) investor protection countries realize lower (higher) returns upon merger announcement. This is consistent with a substitution effect between country-level investor protections and IB-level monitoring of client firms. Overall, our analysis highlights the economic role of country-level investor protections on the relationships between IBs and client firms in an international context.

Suggested Citation

  • Gao, Ya & Liao, Chi & Zhang, Ying & Zhang, Zixu, 2021. "The role of investor protections on the value of investment banking relationships: International evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 72(C).
    • Handle: RePEc:eee:intfin:v:72:y:2021:i:c:s1042443121000329
    DOI: 10.1016/j.intfin.2021.101313
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    More about this item

    Keywords

    Investment banking; Bank-firm relationship; Mergers and acquisitions; Event study; International finance;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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