Commercial banks getting underwriting business: Tying or business building?
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.
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