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Do bank bailouts have an impact on the underwriting business?

Santiago Carbó-Valverde, Pedro J. Cuadros-Solas and Francisco Rodríguez-Fernández
Authors registered in the RePEc Author Service: Santiago Carbo Valverde ()

Journal of Financial Stability, 2020, vol. 49, issue C

Abstract: We explore the effects of bank bailouts on competition in the underwriting business. We exploit a sample of underwriters active in the European corporate bond markets from 2006 to 2013 and find that reputable underwriters suffer market share losses (of 12.43 %) after being bailed out. However, the market share of non-reputable underwriters is found to increase after a bail out. An exploration of the firm–bank underwriting matching reveals that the probability of being chosen as underwriter in a given deal decreases for reputable bailed-out banks, while it increases for non-reputable bailed-out banks. These results provide evidence of the effects of bailouts on underwriting competition. The economic impact depends on the ex-ante reputational capital of the bailed-out bank.

Keywords: Underwriters; Bailout; Reputation; Recapitalization (search for similar items in EconPapers)
JEL-codes: G21 G24 H81 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jfs.2020.100756

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Journal of Financial Stability is currently edited by I. Hasan, W. C. Hunter and G. G. Kaufman

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