Developer's Expertise and Dynamicsof Financial Innovation: Theory and Evidence
We study product innovation and imitation in the market of corporate underwriting with a dynamic model where client switching costs and the bankers’ expertise in deal structuring characterize the life cycle of a security. While the clientele loyalty allows positive rent extraction, the superior expertise can account for the documented market leadership of the innovator. As expertise on product structuring is acquired by imitators, the innovator’s market share advantage decreases. Also, the speed of entry by imitators increases for later generation products. Our predictions are consistent with well documented evidence on the market share leadership of innovators. We also present new evidence from equity-linked and derivative corporate products that supports the dynamic predictions of our learning model.
|Date of creation:||Oct 2004|
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- Peter Tufano, 1995. "Securities Innovations: A Historical And Functional Perspective," Journal of Applied Corporate Finance, Morgan Stanley, vol. 7(4), pages 90-104.
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- 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.
- John D. Finnerty, 1992. "An Overview Of Corporate Securities Innovation," Journal of Applied Corporate Finance, Morgan Stanley, vol. 4(4), pages 23-39.
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