IDEAS home Printed from https://ideas.repec.org/p/kbb/dpaper/2010-55.html
   My bibliography  Save this paper

Does the Intended Use of Proceeds and Bank's Characteristics Affect the Bank Underwriters' Certification Role? Evidence from Seasoned Equity Offerings

Author

Listed:
  • Katsushi Suzuki

    (Graduate School of Business Administration, Kobe University)

  • Kazuo Yamada

    (Graduate School of Business Administration, Kobe University)

Abstract

This paper examines the effects of the intended use of proceeds on bank underwriters' certification roles in Japan following deregulation in 1999. We find that bank underwriters have a positive effect on announcement returns. However, when the issuer discloses that the intended use of proceeds is repayment, the bank underwriter has no effect on the announcement returns. Although banks' holding loans have a positive effect on announcement returns, banks' equity holdings are negatively associated with the announcement return. Furthermore, issuers underwritten by banks whose use of proceeds is loan repayment are more likely to be weak in their ex-post performance than those without repayment. We conclude that banks have different effects on issuers according to the intended use of proceeds and the banks' characteristics.

Suggested Citation

  • Katsushi Suzuki & Kazuo Yamada, 2010. "Does the Intended Use of Proceeds and Bank's Characteristics Affect the Bank Underwriters' Certification Role? Evidence from Seasoned Equity Offerings," Discussion Papers 2010-55, Kobe University, Graduate School of Business Administration.
    • Handle: RePEc:kbb:dpaper:2010-55
    as

    Download full text from publisher

    File URL: https://www.b.kobe-u.ac.jp/papers_files/2010_55.pdf
    File Function: First version, 2010
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Ahern, Kenneth R., 2009. "Sample selection and event study estimation," Journal of Empirical Finance, Elsevier, vol. 16(3), pages 466-482, June.
    2. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    3. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    4. Kang, Jun-Koo & Liu, Wei-Lin, 2007. "Is universal banking justified? Evidence from bank underwriting of corporate bonds in Japan," Journal of Financial Economics, Elsevier, vol. 84(1), pages 142-186, April.
    5. Autore, Don M. & Bray, David E. & Peterson, David R., 2009. "Intended use of proceeds and the long-run performance of seasoned equity issuers," Journal of Corporate Finance, Elsevier, vol. 15(3), pages 358-367, June.
    6. Brennan, Michael J & Kraus, Alan, 1987. "Efficient Financing under Asymmetric Information," Journal of Finance, American Finance Association, vol. 42(5), pages 1225-1243, December.
    7. Chitru S. Fernando & Vladimir A. Gatchev & Paul A. Spindt, 2005. "Wanna Dance? How Firms and Underwriters Choose Each Other," Journal of Finance, American Finance Association, vol. 60(5), pages 2437-2469, October.
    8. Booth, James R. & Smith, Richard II, 1986. "Capital raising, underwriting and the certification hypothesis," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 261-281.
    9. Edel Barnes & Martin Walker, 2006. "The Seasoned-Equity Issues of UK Firms: Market Reaction and Issuance Method Choice," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(1-2), pages 45-78.
    10. George Kanatas & Jianping Qi, 2003. "Integration of Lending and Underwriting: Implications of Scope Economies," Journal of Finance, American Finance Association, vol. 58(3), pages 1167-1191, June.
    11. Burch, Timothy R. & Nanda, Vikram & Warther, Vincent, 2005. "Does it pay to be loyal? An empirical analysis of underwriting relationships and fees," Journal of Financial Economics, Elsevier, vol. 77(3), pages 673-699, September.
    12. Duarte-Silva, Tiago, 2010. "The market for certification by external parties: Evidence from underwriting and banking relationships," Journal of Financial Economics, Elsevier, vol. 98(3), pages 568-582, December.
    13. Chemmanur, Thomas J & Fulghieri, Paolo, 1994. "Reputation, Renegotiation, and the Choice between Bank Loans and Publicly Traded Debt," Review of Financial Studies, Society for Financial Studies, vol. 7(3), pages 475-506.
    14. Takaoka, Sumiko & McKenzie, C.R., 2006. "The impact of bank entry in the Japanese corporate bond underwriting market," Journal of Banking & Finance, Elsevier, vol. 30(1), pages 59-83, January.
    15. Yi‐Mien Lin & Shwu‐Jen You & Fung‐Jiao Lin, 2008. "The Effects of Pre‐issue Information Releases on Seasoned Equity Offerings," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(9‐10), pages 1138-1163, November.
    16. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
    17. Berlin, Mitchell & John, Kose & Saunders, Anthony, 1996. "Bank Equity Stakes in Borrowing Firms and Financial Distress," Review of Financial Studies, Society for Financial Studies, vol. 9(3), pages 889-919.
    18. Yi-Mien Lin & Shwu-Jen You & Fung-Jiao Lin, 2008. "The Effects of Pre-issue Information Releases on Seasoned Equity Offerings," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(9-10), pages 1138-1163.
    19. Li, Xianghong & Zhao, Xinlei, 2006. "Propensity score matching and abnormal performance after seasoned equity offerings," Journal of Empirical Finance, Elsevier, vol. 13(3), pages 351-370, June.
    20. Kanatas, George & Qi, Jianping, 1998. "Underwriting by Commercial Banks: Incentive Conflicts, Scope Economies, and Project Quality," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(1), pages 119-133, February.
    21. 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.
    22. Miller, Merton H & Rock, Kevin, 1985. "Dividend Policy under Asymmetric Information," Journal of Finance, American Finance Association, vol. 40(4), pages 1031-1051, September.
    23. Kang, Jun-Koo & Stulz, Rene M, 1996. "How Different Is Japanese Corporate Finance? An Investigation of the Information Content of New Security Issues," Review of Financial Studies, Society for Financial Studies, vol. 9(1), pages 109-139.
    24. 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.
    25. 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 810-832, September.
    26. John W. Cooney & Hideaki Kiyoshi Kato & James S. Schallheim, 2003. "Underwriter Certification and Japanese Seasoned Equity Issues," Review of Financial Studies, Society for Financial Studies, vol. 16(3), pages 949-982, July.
    27. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    28. Shane A. Corwin, 2003. "The Determinants of Underpricing for Seasoned Equity Offers," Journal of Finance, American Finance Association, vol. 58(5), pages 2249-2279, October.
    29. Edel Barnes & Martin Walker, 2006. "The Seasoned‐Equity Issues of UK Firms: Market Reaction and Issuance Method Choice," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(1‐2), pages 45-78, January.
    30. Puri, Manju, 1996. "Commercial banks in investment banking Conflict of interest or certification role?," Journal of Financial Economics, Elsevier, vol. 40(3), pages 373-401, March.
    31. Walker, Mark D. & Yost, Keven, 2008. "Seasoned equity offerings: What firms say, do, and how the market reacts," Journal of Corporate Finance, Elsevier, vol. 14(4), pages 376-386, September.
    32. 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.
    33. 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.
    34. Konishi, Masaru, 2002. "Bond underwriting by banks and conflicts of interest: Evidence from Japan during the pre-war period," Journal of Banking & Finance, Elsevier, vol. 26(4), pages 767-793, April.
    35. Suzuki, Katsushi, 2010. "Do the equity holding and soundness of bank underwriters affect issue costs of SEOs?," Journal of Banking & Finance, Elsevier, vol. 34(5), pages 984-995, May.
    36. Yasuda, Ayako, 2007. "Bank relationships and underwriter competition: Evidence from Japan," Journal of Financial Economics, Elsevier, vol. 86(2), pages 369-404, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chen, Hsuan-Chi & Chou, De-Wai & Lai, Christine W. & Yeh, Yi-Ting, 2014. "The role of lending-relationship banks in the underwriting of seasoned equity offerings: Conflict of interest or certification?," The North American Journal of Economics and Finance, Elsevier, vol. 28(C), pages 327-346.
    2. Carbó-Valverde, Santiago & Cuadros-Solas, Pedro J. & Rodríguez-Fernández, Francisco, 2021. "The impact of lending relationships on the choice and structure of bond underwriting syndicates," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 74(C).
    3. Yasuda, Ayako, 2007. "Bank relationships and underwriter competition: Evidence from Japan," Journal of Financial Economics, Elsevier, vol. 86(2), pages 369-404, November.
    4. Carbó-Valverde, Santiago & Cuadros-Solas, Pedro J. & Rodríguez-Fernández, Francisco, 2017. "Do banks and industrial companies have equal access to reputable underwriters in debt markets?," Journal of Corporate Finance, Elsevier, vol. 45(C), pages 176-202.
    5. Carbó-Valverde, Santiago & Cuadros-Solas, Pedro J. & Rodríguez-Fernández, Francisco, 2021. "Non-pricing drivers of underwriters’ market shares in corporate bond markets," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 671-693.
    6. Benzoni, Luca & Schenone, Carola, 2010. "Conflict of interest and certification in the U.S. IPO market," Journal of Financial Intermediation, Elsevier, vol. 19(2), pages 235-254, April.
    7. Duarte-Silva, Tiago, 2010. "The market for certification by external parties: Evidence from underwriting and banking relationships," Journal of Financial Economics, Elsevier, vol. 98(3), pages 568-582, December.
    8. Akiyoshi, Fumio, 2019. "Effects of separating commercial and investment banking: Evidence from the dissolution of a joint venture investment bank," Journal of Financial Economics, Elsevier, vol. 134(3), pages 703-714.
    9. Suzuki, Katsushi, 2010. "Do the equity holding and soundness of bank underwriters affect issue costs of SEOs?," Journal of Banking & Finance, Elsevier, vol. 34(5), pages 984-995, May.
    10. Neuhann, Daniel & Saidi, Farzad, 2018. "Do universal banks finance riskier but more productive firms?," Journal of Financial Economics, Elsevier, vol. 128(1), pages 66-85.
    11. Carbó-Valverde, Santiago & Cuadros-Solas, Pedro J. & Rodríguez-Fernández, Francisco, 2020. "Do bank bailouts have an impact on the underwriting business?," Journal of Financial Stability, Elsevier, vol. 49(C).
    12. Ari Pandes, J., 2010. "Bought deals: The value of underwriter certification in seasoned equity offerings," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1576-1589, July.
    13. Kutsuna, Kenji & Smith, Janet Kiholm & Smith, Richard L., 2007. "Banking relationships and access to equity capital markets: Evidence from Japan's main bank system," Journal of Banking & Finance, Elsevier, vol. 31(2), pages 335-360, February.
    14. Barbara Su, 2023. "Banking practices and borrowing firms’ financial reporting quality: evidence from bank cross-selling," Review of Accounting Studies, Springer, vol. 28(1), pages 201-236, March.
    15. Holderness, Clifford G., 2018. "Equity issuances and agency costs: The telling story of shareholder approval around the world," Journal of Financial Economics, Elsevier, vol. 129(3), pages 415-439.
    16. Jeon, Jin Q. & Ligon, James A., 2011. "The role of co-managers in reducing flotation costs: Evidence from seasoned equity offerings," Journal of Banking & Finance, Elsevier, vol. 35(5), pages 1041-1056, May.
    17. Krishnan, Karthik, 2013. "Commercial banks getting underwriting business: Tying or business building?," Journal of Economics and Business, Elsevier, vol. 66(C), pages 47-75.
    18. Konishi, Masaru, 2002. "Bond underwriting by banks and conflicts of interest: Evidence from Japan during the pre-war period," Journal of Banking & Finance, Elsevier, vol. 26(4), pages 767-793, April.
    19. Sun, Yue & Uchida, Konari & Matsumoto, Mamoru, 2013. "The dark side of independent venture capitalists: Evidence from Japan," Pacific-Basin Finance Journal, Elsevier, vol. 24(C), pages 279-300.
    20. Antonio Gledson de Carvalho & Joao Amaro de Matos & Douglas Beserra Pinheiro & Marcio de Sa Mello, 2015. "Conflicts of interest in the underwriting of IPOs and price stabilization," Nova SBE Working Paper Series wp596, Universidade Nova de Lisboa, Nova School of Business and Economics.

    More about this item

    Keywords

    Commercial bank; Intended use of proceeds; Announcement return; Certification; Conflicts of interest;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kbb:dpaper:2010-55. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Yasuyuki Miyahara (email available below). General contact details of provider: https://edirc.repec.org/data/bskobjp.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.