Concurrent Lending and Underwriting and Client Firms Issuing Decisions
We examine how a firms choice as its equity underwriter of a bank that has an outstanding loan with the firm affects its issuing decisions. Such concurrent lending and underwriting relationships are a double-edged sword. The increased loan value if the firms equity is sold suggests greater underwriting efforts by the bank. But the same benefit also implies a severe conflict for the bank to market the equity issues of its borrowers that are no longer creditworthy. Incentive-compatibility constraints that address the bank moral hazard limit the firms equity issue size and underwriting fee. Therefore, it is generally not true that concurrent lending and underwriting relationships motivate greater underwriter efforts. The relative benefit of having such relationships depends on client firm characteristics. Only for firms that have relatively low-return and high-risk assets will current lending and underwriting leads to greater underwriter efforts and lower loan yields. The models empirical implications are testable, some of which are consistent with available evidence.
Jianping Qi
University of South Florida College of Business Administration 4202 E.Fowler Avenue,BSN 3403 Tampa
国际会议
成都
英文
2007-07-09（万方平台首次上网日期，不代表论文的发表时间）