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

36 Pages Posted: 7 Feb 2014 Last revised: 1 Sep 2015

See all articles by David Oesch

David Oesch

University of Zurich

Dustin Schuette

New York University (NYU) - Department of Finance; University of St. Gallen - Swiss Institute of Banking and Finance

Ingo Walter

New York University - Leonard N. Stern School of Business; New York University (NYU) - Department of Finance

Date Written: August 21, 2015

Abstract

In this paper, 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 firms 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 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

JEL Classification: C78, G24, G32, L14

Suggested Citation

Oesch, David and Schuette, Dustin and Walter, Ingo, Real Effects of Investment Banking Relationships: Evidence from the Financial Crisis (August 21, 2015). Available at SSRN: https://ssrn.com/abstract=2391397 or http://dx.doi.org/10.2139/ssrn.2391397

David Oesch (Contact Author)

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Dustin Schuette

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

University of St. Gallen - Swiss Institute of Banking and Finance

Rosenbergstrasse 52
St. Gallen, CH-9000
Switzerland

Ingo Walter

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
New York, NY 10012
United States
212-998-0707 (Phone)
212-995-4220 (Fax)

New York University (NYU) - Department of Finance

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

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