RFS Advance Access originally published online on January 22, 2009
Review of Financial Studies 2009 22(10):3977-4007; doi:10.1093/rfs/hhn106
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Scaling the Hierarchy: How and Why Investment Banks Compete for Syndicate Co-management Appointments
Stern School of Business, New York University, and CEPR
McIntire School of Commerce, University of Virginia
McIntire School of Commerce, University of Virginia, and CEPR
Send correspondence to Alexander Ljungqvist, Salomon Center, Stern School of Business, New York University, Suite 9-160, 44 West Fourth Street, New York, NY 10012-1126; telephone: (212) 998-0304; fax: (212) 995-4220. E-mail: aljungqv{at}stern.nyu.edu.
JEL Classification: G21, G24
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Abstract |
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We show that relatively optimistic research and even the mere provision of research coverage for the issuer (regardless of its direction) attract co-management appointments for securities offerings. Co-management appointments are valuable because they help banks establish relationships with issuers. These relationships, in turn, substantially increase the banks’ chances of winning more lucrative lead-management mandates in the future. This is true even in the presence of historically exclusive banking relationships.
We are grateful to an anonymous referee, Alan Krause, Mitchell Petersen, Richard Rosen, Paul Schultz, and Michael Weisbach (the Editor) for useful suggestions, and to seminar audiences at the University of British Columbia, the University of Maryland, Temple University, the University of Virginia, the University of Wisconsin at Madison, and the Federal Reserve Bank of Chicago/DePaul University joint seminar for helpful comments. We thank Yang Lu for helping us construct our social network measures. We gratefully acknowledge the contribution of Thomson Financial for providing broker recommendations data, available through the Institutional Brokers Estimate System. These data have been provided as part of a broad academic program to encourage earnings expectations research.