TY - JOUR
T1 - Does it pay to be loyal? An empirical analysis of underwriting relationships and fees
AU - Burch, Timothy R.
AU - Nanda, Vikram
AU - Warther, Vincent
N1 - Funding Information:
We are grateful to an anonymous referee for helpful comments and suggestions. We also thank Eric Anderson, Saidy Barinaga, Mihir Desai, Eugene Fama, Raymond P.H. Fishe, Paul Gompers, Robert Hansen, Michael Kollo, Raghuram Rajan, Jay Ritter, Tyler Shumway, Luigi Zingales, seminar participants at the Federal Reserve Bank of Chicago, University of Chicago, Harvard University, University of Illinois at Urbana-Champaign, University of Iowa, University of Michigan, New York University, and University of Notre Dame for helpful comments, and we thank Andy Wong for able research assistance. Timothy Burch acknowledges financial support from a 2002 McLamore research grant at the University of Miami.
Copyright:
Copyright 2005 Elsevier B.V., All rights reserved.
PY - 2005/9
Y1 - 2005/9
N2 - We examine underwriting fees for repeat issuers of new securities to determine the relation between loyalty to an underwriting bank and the fees charged. For a sample of offers over the 1975-2001 period, we find that loyalty is associated with lower fees for common stock offers, consistent with valuable relationship capital being built through loyalty. For debt offers, however, we find the opposite pattern, consistent with relationship capital not being as valuable. For both offer types, firms that graduate to higher-quality banks face lower fees. Firms that are more likely to be switching banks to improve analyst coverage face higher fees for common stock offers, but not for debt offers.
AB - We examine underwriting fees for repeat issuers of new securities to determine the relation between loyalty to an underwriting bank and the fees charged. For a sample of offers over the 1975-2001 period, we find that loyalty is associated with lower fees for common stock offers, consistent with valuable relationship capital being built through loyalty. For debt offers, however, we find the opposite pattern, consistent with relationship capital not being as valuable. For both offer types, firms that graduate to higher-quality banks face lower fees. Firms that are more likely to be switching banks to improve analyst coverage face higher fees for common stock offers, but not for debt offers.
KW - Firm loyalty
KW - Relationship capital
KW - Seasoned offers
KW - Underwriting
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U2 - 10.1016/j.jfineco.2004.08.007
DO - 10.1016/j.jfineco.2004.08.007
M3 - Article
AN - SCOPUS:23844451003
VL - 77
SP - 673
EP - 699
JO - Journal of Financial Economics
JF - Journal of Financial Economics
SN - 0304-405X
IS - 3
ER -