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A Theory of the Syndicate: Form Follows Function

  • William Wilhelm
  • Pegaret Pichler
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    We relate the organizational form of investment banking syndicates to moral hazard in team production. Although syndicates are dissolved upon deal completion, membership stability across deals represents a barrier to entry that enables the capture of quasi-rents. This improves incentives for individual bankers to cultivate investor relationships that translate into greater expected proceeds. Reputational concerns of lead bankers amplify the effect. We derive conditions under which restricted entry and designation of a lead banker strictly Pareto dominate, in which case it is also strictly Pareto dominant for the syndicate`s fee to be greater than members` cost of participation.

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    Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 2001-FE-05.

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    Date of creation: 01 Jan 2001
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    Handle: RePEc:oxf:wpaper:2001-fe-05
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    Web page: http://www.economics.ox.ac.uk/
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