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Advantageous innovation and imitation in the underwriting market for corporate securities

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  • 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
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    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).

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