Breaking Down the Barriers: Competition, Syndicate Structure, and Underwriting Incentives

Anil Shivdasani and Wei-Ling Song
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Anil Shivdasani: University of NC
Wei-Ling Song: LA State University

Working Papers from University of Pennsylvania, Wharton School, Weiss Center

Abstract: We argue that the entry of commercial banks into bond underwriting led to the evolution of co-led underwriting arrangements and lowered the screening incentives of underwriters. Lead underwriters in co-led syndicates faced weaker incentives to screen issuer quality. In boom markets, issues underwritten by co-led syndicates were more likely to be involved in financial misrepresentation events. Underwriter incentives in co-led syndicates were particularly weak in industries where commercial banks stole substantial market share. Similar patterns do not hold in bust markets where investors are likely to engage in their own information collection efforts. Our results suggest that competition may have an adverse effect on the incentives of financial intermediaries in market environments where their information production is more valuable to investors.

JEL-codes: G21 G24 G28 K22 L14 (search for similar items in EconPapers)
Date: 2010-03
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