This paper uses proprietary data on European IPOs with detailed information on the demand at different points of time and allocation for institutional and retail investors. The nature of the data allows us to analyze the reason of why institutional investors as a group get more allocations of underpriced issues than retail investors. By explicitly examining institutional and retail demand for different kinds of stocks, we find that this is due to institutional investors' superior ability to detect underpriced stocks rather than the underwriter's preferential treatment. At the same time, the subset of domestic institutional investors supports the underwriter in issues with weak demand and receives in turn favorable allocations in underpriced issues.

We use proprietary data to analyze the importance of retail banking relationships to commercial banks and their depositors when banks underwrite securities. We find lead underwriters’ retail customers benefit as they demand and end up with significantly more of the highly underpriced issues. We find it is actual underpricing beyond that predicted by grey markets that drive the differential demand from the lead bank retail clientele, suggesting that banks pass on information about underpriced initial public offerings to their retail depositors. We analyze banks’ incentives for such behavior and find evidence of banks benefiting through retail cross-selling—both brokerage accounts and consumer loans increase significantly.

Using a unique dataset of more than 1 million loans made by 296 German banks, we evaluate the impact of many aspects of customer–bank relationships on loan default rates. Our research suggests a practical solution to reducing loan defaults for new customers: Have the customer open a simple transactions account – savings or checking account. Observe for some time and then decide whether to make a loan. Loans made under this model have lower default, as banks can use historical data about their borrowers to establish a baseline against which new client-related information can be evaluated. Banks assemble this historical information through relationships of different forms. We define relationships in many different ways to capture non-credit relationships, transaction accounts, as well as the depth and intensity of relationships, and find each of these can provide information that helps reduce default – even establishing a simple savings or checking account and observing the activity prior to loan granting can help reduce loan defaults. Our results show that banks with relationship-specific information act differently compared with banks that do not have this information both in screening and subsequent monitoring borrowers which helps reduce loan defaults.

This paper examines the broader effects of the US financial crisis on global lending to retail customers. In particular we examine retail bank lending in Germany using a unique data set of German savings banks during the period 2006 through 2008 for which we have the universe of loan applications and loans granted. Our experimental setting allows us to distinguish between savings banks affected by the US financial crisis through their holdings in Landesbanken with substantial subprime exposure and unaffected savings banks. The data enable us to distinguish between demand and supply side effects of bank lending and find that the US financial crisis induced a contraction in the supply of retail lending in Germany. While demand for loans goes down, it is not substantially different for the affected and nonaffected banks. More important, we find evidence of a significant supply side effect in that the affected banks reject substantially more loan applications than nonaffected banks. This result is particularly strong for smaller and more liquidity-constrained banks as well as for mortgage as compared with consumer loans. We also find that bank-depositor relationships help mitigate these supply side effects.

This article explores whether political connections are important in the United States. The article uses an original hand-collected data set on the political connections of board members of S&P 500 companies to sort companies into those connected to the Republican Party and those connected to the Democratic Party. The analysis shows a positive abnormal stock return following the announcement of the nomination of a politically connected individual to the board. This article also analyzes the stock-price response to the Republican win of the 2000 presidential election and finds that companies connected to the Republican Party increase in value, and companies connected to the Democratic Party decrease in value.

We study the impact of exogenous funding shocks to German savings banks during the U.S. subprime mortgage crisis on the labor decisions of 30,000 + private and public firms in Germany. We find that firms with credit relationships with affected banks experience a significant decline in labor demand relative to firms with credit relationships with healthy banks, manifested in a simultaneous reduction in firm-level employment and average wages. The employment effect is more pronounced in larger firms, while the wage effect is stronger in smaller firms. Both employment and wages go back to pre-shock levels three years after the shock.

This paper examines the impact of takeover law enforcement on corporate acquisitions. We use the European Takeover Directive as a natural experiment, which harmonizes takeover law across countries, while leaving its enforcement to the discretion of individual countries. We exploit this heterogeneity in enforcement quality across countries in a difference-in-differences-in-differences model, while employing an overall inductive research approach, following Karpoff and Whittry's (2018) recommendation. We find that acquirer returns increase in countries with improvements in takeover law, driven by better target selection and lower cost of financing. The increase in acquirer returns is lower in weak enforcement jurisdictions, which we identify by developing a novel Takeover Law Enforcement Index (TLEI). The findings show that takeover law can mitigate agency conflicts, but its true value depends on its enforcement. Our results are strongly robust to alternative model specifications.

We analyze the effect of initial public offerings (IPOs) on industry competitors and provide evidence that companies experience negative stock price reactions to completed IPOs in their industry and positive stock price reactions to their withdrawal. Following a successful IPO in their industry, they show significant deterioration in their operating performance. These results are consistent with the existence of IPO‐related competitive advantages through the loosening of financial constraints, financial intermediary certification, and the presence of knowledge capital. These aspects of competitiveness are significant in explaining the cross‐section of underperformance as well as survival probabilities for competing firms.