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A Theory of the Syndicate: Form Follows Function

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  • William Wilhelm
  • Pegaret Pichler
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    Abstract

    We relate the organizational form of investment banking syndicates to moral hazard in team production. Although syndicates are dissolved upon deal completion, membership stability across deals represents a barrier to entry that enables the capture of quasi-rents. This improves incentives for individual bankers to cultivate investor relationships that translate into greater expected proceeds. Reputational concerns of lead bankers amplify the effect. We derive conditions under which restricted entry and designation of a lead banker strictly Pareto dominate, in which case it is also strictly Pareto dominant for the syndicate`s fee to be greater than members` cost of participation.

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    Bibliographic Info

    Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 2001-FE-05.

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    Date of creation: 01 Jan 2001
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    Handle: RePEc:oxf:wpaper:2001-fe-05

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    Cited by:
    1. Marie-Hélène Broihanne & Christophe Godlewski, 2014. "Building reputation on the syndicated lending market: A participant bank perspective," Working Papers of LaRGE Research Center, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg 2014-02, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    2. Vinicius Carrasco & Gustavo Manso, 2006. "Syndication and Robust Collusion in Financial Markets," Textos para discussão, Department of Economics PUC-Rio (Brazil) 522, Department of Economics PUC-Rio (Brazil).
    3. Cerutti, Eugenio & Hale, Galina & Minoiu, Camelia, 2014. "Financial crises and the composition of cross-border lending," Working Paper Series, Federal Reserve Bank of San Francisco 2014-20, Federal Reserve Bank of San Francisco.
    4. Bouaiss, Karima & Refait-Alexandre, Catherine & Alexandre, Hervé, 2011. "Banking relationship and syndicated loans during the last financial crisis," Economics Papers from University Paris Dauphine 123456789/8559, Paris Dauphine University.
    5. Lakicevic, Milan & Shachmurove, Yochanan & Vulanovic, Milos, 2014. "Institutional changes of Specified Purpose Acquisition Companies (SPACs)," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 28(C), pages 149-169.
    6. Casamatta, Catherine & Haritchabalet, Carole, 2007. "Experience, Screening and Syndication in Venture Capital Investments," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 443, Institut d'Économie Industrielle (IDEI), Toulouse.
    7. Shivdasani, Anil & Song, Wei-Ling, 2010. "Breaking Down the Barriers: Competition, Syndicate Structure, and Underwriting Incentives," Working Papers, University of Pennsylvania, Wharton School, Weiss Center 10-25, University of Pennsylvania, Wharton School, Weiss Center.
    8. Wang, Lanfang & Wang, Susheng, 2012. "Endogenous networks in investment syndication," Journal of Corporate Finance, Elsevier, Elsevier, vol. 18(3), pages 640-663.
    9. Jian Cai, 2009. "Competition or collaboration? The reciprocity effect in loan syndication," Working Paper 0909, Federal Reserve Bank of Cleveland.

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