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Innovation and First-Mover Advantages in Corporate Underwriting: Evidence from Equity Linked Securities


  • Enrique Schroth

    (HEC - University of Lausanne and FAME)


Investment banks develop new securities permanently even when their competitors can imitate them almost immediately and at significantly smaller development costs. Using data of all the new issues of Equity Linked and Derivative Securities since 1985 compiled by SDC, and firm financial data from COMPUSTAT, I test if innovators have a demand advantage over the imitators when they compete to underwrite new issues using innovative corporate products. If the innovator has private information about the innovation, his own variety of the security may be better valued than the imitators’ varieties by the issuers. I estimate the issuers’ demand for the banker’s underwriting service across different varieties of equity-linked securities. Using a nested-logit model of discrete choice I find that, ceteris paribus, the demand for innovators’ varieties is larger than for imitators’. I also find that this demand advantage is decreasing in time, suggesting that imitators learn from observing deals made in the past by the innovator and by themselves. The initial innovator’s advantage is larger for securities that appear later in a sequence of innovations but it diminishes faster.

Suggested Citation

  • 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.
  • Handle: RePEc:fam:rpseri:rp74

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    References listed on IDEAS

    1. 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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    Cited by:

    1. Helios Herrera & Enrique Schroth, 2003. "Profitable Innovation Without Patent Protection: The Case of Derivatives," Working Papers 0302, Centro de Investigacion Economica, ITAM.
    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.

    More about this item


    Financial Innovation; Investment Banking; Underwriting; First-Mover Advanatges; Demand Estimation;

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • L89 - Industrial Organization - - Industry Studies: Services - - - Other


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