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Conflict of Interest in Universal Banking: Evidence from the Post-Issue performance of IPO Firms

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  • Ber, Y.
  • Yafeh, Y.
  • Yosha, O.
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    Abstract

    Using a unique newly constructed data set on Israeli IPO firms in the 1990s, we study costs and benefits of universal banking. The post-issue accounting profitability of firms underwritten by bank affiliated underwriters that were also borrowers from the same bank in the IPO year, is significantly better than average. This is interpreted as evidence that universal banks use their superior information regarding underwritten firms to float the cherries, not the lemons. We also find, however, that the stock price performance of these firms during the first year following the IPO is lower than average.

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    Bibliographic Info

    Paper provided by Tel Aviv in its series Papers with number 18-97.

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    Length: 27 pages
    Date of creation: 1997
    Date of revision:
    Handle: RePEc:fth:teavfo:18-97

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    Phone: 972-3-640-9255
    Fax: 972-3-640-5815
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    Web page: http://econ.tau.ac.il/research/foerder.asp
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    Keywords: INVESTMENTS ; BANKING;

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    Cited by:
    1. Agarwal, Rajshree & Ann Elston, Julie, 2001. "Bank-firm relationships, financing and firm performance in Germany," Economics Letters, Elsevier, vol. 72(2), pages 225-232, August.
    2. Puri, Manju, 1999. "Commercial banks as underwriters: implications for the going public process," Journal of Financial Economics, Elsevier, vol. 54(2), pages 133-163, October.

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