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Breaking down the barriers: Competition, syndicate structure, and underwriting incentives

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  • Shivdasani, Anil
  • Song, Wei-Ling
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    Abstract

    We argue that the entry of commercial banks into bond underwriting led to the evolution of co-led underwriting arrangements and lowered the screening incentives of underwriters. Lead underwriters in co-led syndicates faced weaker incentives to screen issuer quality. In boom markets, issues underwritten by co-led syndicates were more likely to be involved in financial misrepresentation events. Underwriter incentives in co-led syndicates were particularly weak in industries where commercial banks stole substantial market share. Similar patterns do not hold in bust markets where investors are likely to engage in their own information collection efforts. Our results suggest that competition may have an adverse effect on the incentives of financial intermediaries in market environments where their information production is more valuable to investors.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 99 (2011)
    Issue (Month): 3 (March)
    Pages: 581-600

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    Handle: RePEc:eee:jfinec:v:99:y:2011:i:3:p:581-600

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    Web page: http://www.elsevier.com/locate/inca/505576

    Related research

    Keywords: Banking deregulation Underwriting Certification Investment banking Financial fraud;

    References

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    Cited by:
    1. Andres, Christian & Betzer, André & Limbach, Peter, 2014. "Underwriter reputation and the quality of certification: Evidence from high-yield bonds," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 97-115.
    2. Christian Andres & André Betzer & Peter Limbach, 2013. "Underwriter Reputation and the Quality of Certification: Evidence from High-Yield Bonds," Schumpeter Discussion Papers SDP13006, Universitätsbibliothek Wuppertal, University Library.
    3. Liu, Wenchien & Miu, Peter & Chang, Yuanchen & Ozdemir, Bogie, 2012. "Information asymmetry and bank regulation: Can the spread of debt contracts be explained by recovery rates?," Journal of Financial Intermediation, Elsevier, vol. 21(1), pages 123-150.

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