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A Theory of the Syndicate: Form Follows Function

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Author Info
Pegaret Pichler
William Wilhelm ()
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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Paper provided by Oxford Financial Research Centre in its series OFRC Working Papers Series with number 2001fe05.

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Date of creation: 2001
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Handle: RePEc:sbs:wpsefe:2001fe05

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Edward P. Lazear & Sherwin Rosen, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-95, December. [Downloadable!] (restricted)
    Other versions:
  3. Benveniste, Lawrence M. & Busaba, Walid Y. & Wilhelm Jr., William J., 1996. "Price stabilization as a bonding mechanism in new equity issues," Journal of Financial Economics, Elsevier, vol. 42(2), pages 223-255, October. [Downloadable!] (restricted)
  4. Booth, James R. & Smith, Richard II, 1986. "Capital raising, underwriting and the certification hypothesis," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 261-281. [Downloadable!] (restricted)
  5. Persons, John C & Warther, Vincent A, 1997. "Boom and Bust Patterns in the Adoption of Financial Innovations," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 10(4), pages 939-67.
  6. Rock, Kevin, 1986. "Why new issues are underpriced," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 187-212. [Downloadable!] (restricted)
  7. William J. Wilhelm, 1999. "Internet Investment Banking: The Impact Of Information Technology On Relationship Banking," Journal of Applied Corporate Finance, Morgan Stanley, vol. 12(1), pages 21-27. [Downloadable!] (restricted)
  8. Nanda, Vikram & Yun, Youngkeol, 1997. "Reputation and Financial Intermediation: An Empirical Investigation of the Impact of IPO Mispricing on Underwriter Market Value," Journal of Financial Intermediation, Elsevier, vol. 6(1), pages 39-63, January. [Downloadable!] (restricted)
  9. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August. [Downloadable!] (restricted)
  10. Hsuan-Chi Chen & Jay R. Ritter, 2000. "The Seven Percent Solution," Journal of Finance, American Finance Association, vol. 55(3), pages 1105-1131, 06. [Downloadable!] (restricted)
  11. Lee, Inmoo & et al, 1996. "The Costs of Raising Capital," Journal of Financial Research, Southern Finance Association and Southwestern Finance Association, vol. 19(1), pages 59-74, Spring.
  12. Chemmanur, Thomas J & Fulghieri, Paolo, 1994. " Investment Bank Reputation, Information Production, and Financial Intermediation," Journal of Finance, American Finance Association, vol. 49(1), pages 57-79, March. [Downloadable!] (restricted)
  13. Mandelker, Gershon & Raviv, Artur, 1977. "Investment Banking: An Economic Analysis of Optimal Underwriting Contracts," Journal of Finance, American Finance Association, vol. 32(3), pages 683-94, June. [Downloadable!] (restricted)
  14. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn. [Downloadable!] (restricted)
  15. Benveniste, Lawrence M. & Spindt, Paul A., 1989. "How investment bankers determine the offer price and allocation of new issues," Journal of Financial Economics, Elsevier, vol. 24(2), pages 343-361. [Downloadable!] (restricted)
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  1. Tykvová, Tereza, 2005. "Who Chooses Whom? Syndication, Skills and Reputation," ZEW Discussion Papers 05-74, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
    Other versions:
  2. Bourjade, Sylvain, 2002. "Diversification of Investor's Expertise in IPOs
    [Information diversification prior to an IPO]    ," MPRA Paper 7259, University Library of Munich, Germany, revised Dec 2007. [Downloadable!]
  3. Zsuzsanna Fluck & Kedran Garrison & Stewart C. Myers, 2005. "Venture Capital Contracting and Syndication: An Experiment in Computational Corporate Finance," NBER Working Papers 11624, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Schertler, Andrea & Tykvová, Tereza, 2006. "Rivals or partners? : Evidence from Europe's international private equity deals," ZEW Discussion Papers 06-91, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  5. Alan Morrison & William J. Wilhelm, Jr., 2003. "Partnership Firms, Reputation and Human Capital," OFRC Working Papers Series 2003fe02, Oxford Financial Research Centre. [Downloadable!]
  6. Jian Cai, 2009. "Competition or collaboration? The reciprocity effect in loan syndication," Working Paper 0909, Federal Reserve Bank of Cleveland. [Downloadable!]
  7. Christophe J. Godlewski, 2008. "What Drives the Arrangement Timetable of Bank Loan Syndication ?," Working Papers of LaRGE (Laboratoire de Recherche en Gestion et Economie) 2008-02, Laboratoire de Recherche en Gestion et Economie, Université de Strasbourg (France). [Downloadable!]
  8. Issam Hallak & Paul Schure, 2008. "Why Larger Lenders obtain Higher Returns: Evidence from Sovereign Syndicated Loans," Department Discussion Papers 0802, Department of Economics, University of Victoria. [Downloadable!]
  9. Christophe J. Godlewski, 2008. "Banking Environment, Agency Costs, and Loan Syndication : A Cross-Country Analysis," Working Papers of LaRGE (Laboratoire de Recherche en Gestion et Economie) 2008-08, Laboratoire de Recherche en Gestion et Economie, Université de Strasbourg (France). [Downloadable!]
  10. Christophe J. Godlewski & Laurent Weill, 2007. "Syndicated Loans in Emerging Markets," Working Papers of LaRGE (Laboratoire de Recherche en Gestion et Economie) 2007-03, Laboratoire de Recherche en Gestion et Economie, Université de Strasbourg (France). [Downloadable!]
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  11. Godlewski, Christophe, 2008. "Duration of loan arrangement and syndicate organization," MPRA Paper 10953, University Library of Munich, Germany. [Downloadable!]
  12. M. Meuleman & S. Manigart & A. Lockett & M. Wright, 2006. "Transaction costs, behavioral uncertainty and the formation of interfirm cooperations: Syndication in the UK private equity market," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 06/359, Ghent University, Faculty of Economics and Business Administration. [Downloadable!]
  13. Casamatta, Catherine & Haritchabalet, Carole, 2007. "Experience, Screening and Syndication in Venture Capital Investments," IDEI Working Papers 443, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
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  14. Mark Pyles & Donald Mullineax, 2008. "Constraints on Loan Sales and the Price of Liquidity," Journal of Financial Services Research, Springer, vol. 33(1), pages 21-36, February. [Downloadable!] (restricted)
  15. Lawrence M. Benveniste & Alexander Ljungqvist & William J. Wilhelm & Xiaoyun Yu, 2002. "Evidence of Information Spillovers in the Production of Investment Banking Services," OFRC Working Papers Series 2002fe06, Oxford Financial Research Centre. [Downloadable!]
    Other versions:
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