Real Effects of Investment Banking Relationships: Evidence from the Financial Crisis

David Oesch (david.oesch@unisg.ch), Dustin Schuette and Ingo Walter

No 1405, Working Papers on Finance from University of St. Gallen, School of Finance

Abstract: We investigate the damage to real-sector investment spending and corporate financing activities triggered by the failure of three major investment banks during the 2007-09 financial crisis. We find that corporations characterized by pre-crisis corporate investment banking relationships with troubled investment banks exhibit significantly lower post-crisis investment spending activity and securities issuance compared to corporations that were not affiliated with the troubled institutions. The effect varies systematically with the nature and strength of the investment banking relationship. Our results are robust with respect to various modifications and extensions of our empirical design (including a matched control sample) and generally inconsistent with alternative explanations unrelated to investment banking relationships.

Keywords: firm-underwriter relationship; investment banking; financial crisis; financial shocks; real effects; investment; financing; cash holdings (search for similar items in EconPapers)
JEL-codes: C78 G24 G32 L14 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2014-02, Revised 2015-08
New Economics Papers: this item is included in nep-ban
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:usg:sfwpfi:2014:05

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