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Conflict of Interest in Universal Banking: Evidence from the Post-Issue performance of IPO Firms

Author

Listed:
  • Ber, Y.
  • Yafeh, Y.
  • Yosha, O.

Abstract

Using a unique newly constructed data set on Israeli IPO firms in the 1990s, we study costs and benefits of universal banking. The post-issue accounting profitability of firms underwritten by bank affiliated underwriters that were also borrowers from the same bank in the IPO year, is significantly better than average. This is interpreted as evidence that universal banks use their superior information regarding underwritten firms to float the cherries, not the lemons. We also find, however, that the stock price performance of these firms during the first year following the IPO is lower than average.

Suggested Citation

  • Ber, Y. & Yafeh, Y. & Yosha, O., 1997. "Conflict of Interest in Universal Banking: Evidence from the Post-Issue performance of IPO Firms," Papers 18-97, Tel Aviv.
    • Handle: RePEc:fth:teavfo:18-97
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    Citations

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    Cited by:

    1. Asher Blass & Yishay Yafeh, 1998. "Vagabond Shoes Longing to Stray ­Why Israeli Firms List in New York Causes and Implications," Bank of Israel Working Papers 1998.02, Bank of Israel.
    2. Paige Fields & Donald Fraser & Rahul Bhargava, 2003. "A Comparison of Underwriting Costs of Initial Public Offerings by Investment and Commercial Banks," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 26(4), pages 517-534, December.
    3. Krausz, Miriam & Paroush, Jacob, 2002. "Financial advising in the presence of conflict of interests," Journal of Economics and Business, Elsevier, vol. 54(1), pages 55-71.
    4. Asher Blass & Yishay Yafeh & Oved Yosha, 1998. "Corporate Governance In An Emerging Market: The Case Of Israel," Journal of Applied Corporate Finance, Morgan Stanley, vol. 10(4), pages 79-89, January.
    5. 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.
    6. Agarwal, Rajshree & Ann Elston, Julie, 2001. "Bank-firm relationships, financing and firm performance in Germany," Economics Letters, Elsevier, vol. 72(2), pages 225-232, August.

    More about this item

    Keywords

    INVESTMENTS ; BANKING;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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