Traders vs. Relationship Managers: Reputational Conflicts in Full-Service Investment Banks

Zhaohui Chen; Alan D. Morrison; William J. Wilhelm

doi:10.1093/rfs/hhu086

Traders vs. Relationship Managers: Reputational Conflicts in Full-Service Investment Banks

Zhaohui Chen¹; Alan D. Morrison²; William J. Wilhelm³

¹ McIntire School of Commerce University of Virginia · ² Saïd Business School, University of Oxford · ³ McIntire School of Commerce, University of Virginia, Lingnan (University) College, Sun Yat-sen University

Review of Financial Studies 2015

We present a model that explains why investment bankers struggle to manage conflicts of interest. Banks can build a type reputation for technical competence by performing complex deals that may not serve their clients' interest; on the other hand, banks can sustain a behavioral reputation by refraining from doing so. A behavioral reputation is a luxury reserved for banks that have proven their abilities. The model sheds light on conflicts between the trading and advisory divisions of investment banks, as well as the consequences of technological change for time variation in the relative strength of behavioral- and type-reputation concerns.

DOI: 10.1093/rfs/hhu086
Volume: 28 (4)
Pages: 1153-1198
Language: en
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