IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Commercial banks getting underwriting business: Tying or business building?

  • Krishnan, Karthik
Registered author(s):

    I investigate how commercial banks can use lending to attract underwriting business from loan clients. My empirical evidence indicates that rather than using less credit and higher spreads to punish firms that do not give them underwriting business (i.e., coercive tying), banks use more credit and lower spreads as incentives for firms to give them future underwriting business. Further, banks that continue business relations by lending again to firms are rewarded with a higher probability of receiving those firms’ future underwriting business. My results do not support recent concerns of tying behavior by banks. Rather, the evidence suggests that banks use discounted lending to attract underwriting business. My results indicate that the ability to lend may have an impact on how investments banks compete for underwriting business.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.sciencedirect.com/science/article/pii/S0148619512000707
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Elsevier in its journal Journal of Economics and Business.

    Volume (Year): 66 (2013)
    Issue (Month): C ()
    Pages: 47-75

    as
    in new window

    Handle: RePEc:eee:jebusi:v:66:y:2013:i:c:p:47-75
    Contact details of provider: Web page: http://www.elsevier.com/locate/jeconbus

    References listed on IDEAS
    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.:

    as in new window
    1. Xavier Freixas & Gyöngyi Lóránth & Alan D. Morrison, 2005. "Regulating Financial Conglomerates," OFRC Working Papers Series 2005fe03, Oxford Financial Research Centre.
    2. Chemmanur, T.J. & Fulghieri, P., 1992. "Reputation, Renegotiation, and the Choice Between Bank Loans and Publicity Traded Debt," Papers 92-24, Columbia - Graduate School of Business.
    3. Miles Livingston & Lei Zhou, 2002. "The Impact of Rule 144A Debt Offerings Upon Bond Yields and Underwriter Fees," Financial Management, Financial Management Association, vol. 31(4), Winter.
    4. Carola Schenone, 2004. "The Effect of Banking Relationships on the Firm's IPO Underpricing," Journal of Finance, American Finance Association, vol. 59(6), pages 2903-2958, December.
    5. Kroszner, Randall S & Rajan, Raghuram G, 1994. "Is the Glass-Steagall Act Justified? A Study of the U.S. Experience with Universal Banking before 1933," American Economic Review, American Economic Association, vol. 84(4), pages 810-32, September.
    6. Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
    7. Richard B. Carter & Frederick H. Dark & Ajai K. Singh, 1998. "Underwriter Reputation, Initial Returns, and the Long-Run Performance of IPO Stocks," Journal of Finance, American Finance Association, vol. 53(1), pages 285-311, 02.
    8. Gande, Amar, et al, 1997. "Bank Underwriting of Debt Securities: Modern Evidence," Review of Financial Studies, Society for Financial Studies, vol. 10(4), pages 1175-1202.
    9. Steven A. Sharpe, 1989. "Asymmetric information, bank lending, and implicit contracts: a stylized model of customer relationships," Finance and Economics Discussion Series 70, Board of Governors of the Federal Reserve System (U.S.).
    10. Gande, Amar & Puri, Manju & Saunders, Anthony, 1999. "Bank entry, competition, and the market for corporate securities underwriting," Journal of Financial Economics, Elsevier, vol. 54(2), pages 165-195, October.
    11. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
    12. Kamphol Panyagometh & Gordon S. Roberts, 2010. "Do Lead Banks Exploit Syndicate Participants? Evidence from Ex Post Risk," Financial Management, Financial Management Association International, vol. 39(1), pages 273-299, 03.
    13. Puri, Manju, 1999. "Commercial banks as underwriters: implications for the going public process," Journal of Financial Economics, Elsevier, vol. 54(2), pages 133-163, October.
    14. Steven Drucker & Manju Puri, 2005. "On the Benefits of Concurrent Lending and Underwriting," Journal of Finance, American Finance Association, vol. 60(6), pages 2763-2799, December.
    15. Rajan, Raghuram G, 1992. " Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt," Journal of Finance, American Finance Association, vol. 47(4), pages 1367-400, September.
    16. Marcia Millon Cornett & Evren Ors & Hassan Tehranian, 2002. "Bank Performance around the Introduction of a Section 20 Subsidiary," Journal of Finance, American Finance Association, vol. 57(1), pages 501-521, 02.
    17. Bolton, Patrick & Freixas, Xavier & Shapiro, Joel, 2007. "Conflicts of interest, information provision, and competition in the financial services industry," Journal of Financial Economics, Elsevier, vol. 85(2), pages 297-330, August.
    18. Mark Carey S. & Stephen Prowse & John Rea & Gregory Udell, 1993. "The economics of the private placement market," Staff Studies 166, Board of Governors of the Federal Reserve System (U.S.).
    19. Carter, Richard B & Manaster, Steven, 1990. " Initial Public Offerings and Underwriter Reputation," Journal of Finance, American Finance Association, vol. 45(4), pages 1045-67, September.
    20. Ang, James S. & Richardson, Terry, 1994. "The underwriting experience of commercial bank affiliates prior to the Glass-Steagall Act: A reexamination of evidence for passage of the act," Journal of Banking & Finance, Elsevier, vol. 18(2), pages 351-395, January.
    21. Hao, Li & Nandy, Debarshi K. & Roberts, Gordon S., 2012. "Effects of Bank Regulation and Lender Location on Loan Spreads," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 47(06), pages 1247-1278, December.
    22. Roten, Ivan C. & Mullineaux, Donald J., 2002. "Debt underwriting by commercial bank-affiliated firms and investment banks: More evidence," Journal of Banking & Finance, Elsevier, vol. 26(4), pages 689-718, April.
    23. Ayako Yasuda, 2005. "Do Bank Relationships Affect the Firm's Underwriter Choice in the Corporate-Bond Underwriting Market?," Journal of Finance, American Finance Association, vol. 60(3), pages 1259-1292, 06.
    24. 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.
    25. Bharath, Sreedhar & Dahiya, Sandeep & Saunders, Anthony & Srinivasan, Anand, 2007. "So what do I get? The bank's view of lending relationships," Journal of Financial Economics, Elsevier, vol. 85(2), pages 368-419, August.
    26. Puri, Manju, 1994. "The long-term default performance of bank underwritten security issues," Journal of Banking & Finance, Elsevier, vol. 18(2), pages 397-418, January.
    27. Shane A. Corwin & Paul Schultz, 2005. "The Role of IPO Underwriting Syndicates: Pricing, Information Production, and Underwriter Competition," Journal of Finance, American Finance Association, vol. 60(1), pages 443-486, 02.
    28. Megginson, William L & Weiss, Kathleen A, 1991. " Venture Capitalist Certification in Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(3), pages 879-903, July.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:eee:jebusi:v:66:y:2013:i:c:p:47-75. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

    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 references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.