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Relationship banking and conflicts of interest: Evidence from German initial public offerings

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  • Klein, Peter G.
  • Wuebker, Robert
  • Zoeller, Kathrin

Abstract

This paper investigates conflicts of interest associated with relationship banking. Using a sample of 270 German initial public offerings (IPOs), we ask if universal-bank-underwritten IPOs perform differently from IPOs underwritten by specialized investment banks. We find that universal-bank affiliation is correlated with higher first-day returns (underpricing) but uncorrelated with long-term performance, suggesting that underpricing compensates for potential conflicts of interest. Our results also suggest that preexisting bank relationships, rather than issuer characteristics, may determine underwriter choice.

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  • Klein, Peter G. & Wuebker, Robert & Zoeller, Kathrin, 2016. "Relationship banking and conflicts of interest: Evidence from German initial public offerings," Journal of Corporate Finance, Elsevier, vol. 39(C), pages 210-221.
    • Handle: RePEc:eee:corfin:v:39:y:2016:i:c:p:210-221
    DOI: 10.1016/j.jcorpfin.2016.03.010
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    More about this item

    Keywords

    Universal banking; Relationship banking; Initial public offering; Underpricing;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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