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Bank Underwriting of Debt Securities: Modern Evidence

Amar Gande1; Manju Puri2; Anthony Saunders3,4; Ingo Walter4

1 Vanderbilt University · 2 Stanford University · 3 Schlumberger (Ireland) · 4 New York University

Review of Financial Studies 1997

This article examines debt securities underwritten by Section 20 subsidiaries of bank holding companies relative to those underwritten by investment houses. Consistent with a net certification effect for banks, bank underwriting of lower credit rated firms to whom the bank lends results in relatively higher prices (lower yields). We find no evidence of conflicts of interest even when an issue is used to repay bank debt. Further, banks bring a relatively larger proportion of small issues to the market. Contrary to the contention that universal banking stunts availability of finance to small firms, bank underwritings appear to benefit small firms.

DOI
10.1093/rfs/10.4.1175
Volume
10 (4)
Pages
1175-1202
Language
en
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