Competition in Investment Banking

34 Pages Posted: 26 Mar 2005

See all articles by Katrina Ellis

Katrina Ellis

Government of the Commonwealth of Australia - Australian Prudential Regulation Authority (APRA)

Roni Michaely

The University of Hong Kong; ECGI

Maureen O'Hara

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: March 2006

Abstract

We construct a comprehensive measure of overall investment banking competitiveness for follow-on offerings that aggregates the various dimensions of competition such as fees, pricing accuracy, analyst recommendations, distributional abilities, market making prowess, debt offering capabilities, and overall reputation. The measure allows us to incorporate trade-offs that investment banks may use in competing for new or established clients. We find that firms who seek a higher reputation underwriter face relatively non-competitive markets. In contrast, firms who switch to similar-quality underwriters enjoy more intense competition among investment banks which manifests in lower fees and more optimistic recommendations. Investment banks do compete vigorously for some clients, with the level of competition related to the likelihood of gaining or losing clients. Finally, investment banks not performing up to market norms are more likely to be dropped in the follow-on offering.

Keywords: Investment banking, equity offerings, underwriting, analyst recommendations, market making

JEL Classification: G24, G32

Suggested Citation

Ellis, Katrina and Michaely, Roni and O'Hara, Maureen, Competition in Investment Banking (March 2006). Available at SSRN: https://ssrn.com/abstract=491722 or http://dx.doi.org/10.2139/ssrn.491722

Katrina Ellis (Contact Author)

Government of the Commonwealth of Australia - Australian Prudential Regulation Authority (APRA) ( email )

400 George Street
Sydney, NSW 2000
Australia

Roni Michaely

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Maureen O'Hara

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States
607-255-3645 (Phone)
607-255-5993 (Fax)

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