IDEAS home Printed from https://ideas.repec.org/a/eee/jbfina/v35y2011i5p1097-1113.html
   My bibliography  Save this article

Advantageous innovation and imitation in the underwriting market for corporate securities

Author

Listed:
  • Herrera, Helios
  • Schroth, Enrique

Abstract

Investment banks that develop new corporate securities systematically lead the new underwriting market despite being imitated early by equally competitive rivals. We study how innovators and imitators set underwriting fees in order to identify empirically the source of this advantage. Using data of innovative securities since 1985, we do find that innovators set systematically higher fees than imitators. This premium decreases as more issues occur, and faster for later generation products. Imitation is also quicker for later generations. This evidence supports the hypothesis that the innovator has superior skills in structuring any given issue of the new security.

Suggested Citation

  • Herrera, Helios & Schroth, Enrique, 2011. "Advantageous innovation and imitation in the underwriting market for corporate securities," Journal of Banking & Finance, Elsevier, vol. 35(5), pages 1097-1113, May.
    • Handle: RePEc:eee:jbfina:v:35:y:2011:i:5:p:1097-1113
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378-4266(10)00369-9
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. W. Scott Frame & Lawrence J. White, 2004. "Empirical Studies of Financial Innovation: Lots of Talk, Little Action?," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 116-144, March.
    2. Altinkilic, Oya & Hansen, Robert S, 2000. "Are There Economies of Scale in Underwriting Fees? Evidence of Rising External Financing Costs," The Review of Financial Studies, Society for Financial Studies, vol. 13(1), pages 191-218.
    3. Tufano, Peter, 1989. "Financial innovation and first-mover advantages," Journal of Financial Economics, Elsevier, vol. 25(2), pages 213-240, December.
    4. Döbeli, Barbara & Vanini, Paolo, 2010. "Stated and revealed investment decisions concerning retail structured products," Journal of Banking & Finance, Elsevier, vol. 34(6), pages 1400-1411, June.
    5. Peter Tufano, 1995. "Securities Innovations: A Historical And Functional Perspective," Journal of Applied Corporate Finance, Morgan Stanley, vol. 7(4), pages 90-104, January.
    6. Hernández-Murillo, Rubén & Llobet, Gerard & Fuentes, Roberto, 2010. "Strategic online banking adoption," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1650-1663, July.
    7. Van Horne, James C, 1985. "Of Financial Innovations and Excesses," Journal of Finance, American Finance Association, vol. 40(3), pages 621-631, July.
    8. S. Swidler & P. Ahmed, 1994. "Wealth transfers and the initial pricing of PERCS," Applied Economics Letters, Taylor & Francis Journals, vol. 1(11), pages 190-193.
    9. Rossetto, Silvia & Bommel, Jos van, 2009. "Endless leverage certificates," Journal of Banking & Finance, Elsevier, vol. 33(8), pages 1543-1553, August.
    10. Josh Lerner, 2002. "Where Does State Street Lead? A First Look at Finance Patents, 1971 to 2000," Journal of Finance, American Finance Association, vol. 57(2), pages 901-930, April.
    11. Breuer, Wolfgang & Hauten, Guido & Kreuz, Claudia, 2009. "Financial instruments with sports betting components: Marketing gimmick or a domain for behavioral finance?," Journal of Banking & Finance, Elsevier, vol. 33(12), pages 2241-2252, December.
    12. John D. Finnerty, 1992. "An Overview Of Corporate Securities Innovation," Journal of Applied Corporate Finance, Morgan Stanley, vol. 4(4), pages 23-39, January.
    13. Persons, John C & Warther, Vincent A, 1997. "Boom and Bust Patterns in the Adoption of Financial Innovations," The Review of Financial Studies, Society for Financial Studies, vol. 10(4), pages 939-967.
    14. Bhattacharyya, Sugato & Nanda, Vikram, 2000. "Client Discretion, Switching Costs, and Financial Innovation," The Review of Financial Studies, Society for Financial Studies, vol. 13(4), pages 1101-1127.
    15. Tufano, Peter, 2003. "Financial innovation," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 6, pages 307-335, Elsevier.
    16. Peter Tufano, 2003. "Financial Innovation," Levine's Working Paper Archive 618897000000000651, David K. Levine.
    17. Enrique Schroth, 2006. "Innovation, Differentiation, and the Choice of an Underwriter: Evidence from Equity-Linked Securities," The Review of Financial Studies, Society for Financial Studies, vol. 19(3), pages 1041-1080.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Baller, Stefanie & Entrop, Oliver & McKenzie, Michael & Wilkens, Marco, 2016. "Market makers’ optimal price-setting policy for exchange-traded certificates," Journal of Banking & Finance, Elsevier, vol. 71(C), pages 206-226.
    2. Denitsa Stefanova & Arjen Siegmann & Marcin Zamojski, 2014. "Hedge Fund Innovation," LSF Research Working Paper Series 14-13, Luxembourg School of Finance, University of Luxembourg.
    3. Fardeau, Vincent, 2023. "Sequential entry in illiquid markets," Journal of Financial Markets, Elsevier, vol. 64(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Helios Herrera & Enrique Schroth, 2005. "Developer's Expertise and the Dynamics of Financial Innovation: Theory and Evidence," Levine's Bibliography 784828000000000290, UCLA Department of Economics.
    2. Helios Herrera & Enrique Schroth, 2004. "Developer's Expertise and Dynamicsof Financial Innovation: Theory and Evidence," FAME Research Paper Series rp124, International Center for Financial Asset Management and Engineering.
    3. Tamer Khraisha & Keren Arthur, 2018. "Can we have a general theory of financial innovation processes? A conceptual review," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 4(1), pages 1-27, December.
    4. W. Scott Frame & Lawrence J. White, 2009. "Technological change, financial innovation, and diffusion in banking," FRB Atlanta Working Paper 2009-10, Federal Reserve Bank of Atlanta.
    5. Helios Herrera & Enrique Schroth, 2003. "Profitable Innovation Without Patent Protection: The Case of Derivatives," Working Papers 0302, Centro de Investigacion Economica, ITAM.
    6. Bos, Jaap W.B. & Kolari, James W. & van Lamoen, Ryan C.R., 2013. "Competition and innovation: Evidence from financial services," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1590-1601.
    7. W. Scott Frame & Lawrence J. White, 2004. "Empirical Studies of Financial Innovation: Lots of Talk, Little Action?," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 116-144, March.
    8. Hamid Mohtadi & Stefan Ruediger, 2014. "Volatility and Transparency of Financial Markets in the MENA Region," BIFEC Book of Abstracts & Proceedings, Research and Business Development Department, Borsa Istanbul, vol. 1(2), pages 173-195, March.
    9. Mehmet Balcilar & Riza Demirer, 2014. "The Effect of Global Shocks and Volatility on Herd Behavior in Borsa Istanbul," BIFEC Book of Abstracts & Proceedings, Research and Business Development Department, Borsa Istanbul, vol. 1(2), pages 142-172, March.
    10. Fabian Kuehnhausen, 2014. "The Impact of Financial Innovation on Firm Stability," BIFEC Book of Abstracts & Proceedings, Research and Business Development Department, Borsa Istanbul, vol. 1(2), pages 211-239, March.
    11. Dominic Atogumsekiya Anarigide & Haruna Issahaku & Stanley Kojo Dary, 2023. "Drivers of financial innovation in sub-Saharan Africa," SN Business & Economics, Springer, vol. 3(9), pages 1-21, September.
    12. Enrique Schroth, 2002. "Innovation and First-Mover Advantages in Corporate Underwriting: Evidence from Equity Linked Securities," FAME Research Paper Series rp74, International Center for Financial Asset Management and Engineering.
    13. Lerner, Josh, 2006. "The new new financial thing: The origins of financial innovations," Journal of Financial Economics, Elsevier, vol. 79(2), pages 223-255, February.
    14. Suleyman Hilmi Kal & Nuran Arslaner & Ferhat Arslaner, 2014. "Inflation Dynamics and Business Cycles," BIFEC Book of Abstracts & Proceedings, Research and Business Development Department, Borsa Istanbul, vol. 1(2), pages 121-129, March.
    15. Awrey, Dan, 2013. "Toward a supply-side theory of financial innovation," Journal of Comparative Economics, Elsevier, vol. 41(2), pages 401-419.
    16. Hasan Cömert & Gerald Epstein, 2016. "Finansal Yenilik Yazinindaki Son Gelismeler," STPS Working Papers 1604, STPS - Science and Technology Policy Studies Center, Middle East Technical University, revised Jan 2016.
    17. Guzin Gulsun Akin & Ahmet Faruk Aysan & Gültekin Gollu & Levent Yildiran, 2014. "Formal and Informal Regulations for Credit Card Payment Services," BIFEC Book of Abstracts & Proceedings, Research and Business Development Department, Borsa Istanbul, vol. 1(2), pages 1-33, March.
    18. Bruno Rossignoli & Francesca Arnaboldi, 2009. "Financial innovation: theoretical issues and empirical evidence in Italy and in the UK," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 56(3), pages 275-301, September.
    19. Antonina Waszczuk, 2014. "Assembling International Equity Datasets – Review of Studies on the Cross-Section of Common Stocks," BIFEC Book of Abstracts & Proceedings, Research and Business Development Department, Borsa Istanbul, vol. 1(2), pages 34-65, March.
    20. Sezer Bozkus Kahyaoglu & M. Vedat Pazarlioglu, 2014. "Hedging Strategy for Electricity Market Price Volatility: The Case of Turkish Electricity Market," BIFEC Book of Abstracts & Proceedings, Research and Business Development Department, Borsa Istanbul, vol. 1(2), pages 196-210, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:35:y:2011:i:5:p:1097-1113. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jbf .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.