The tying of lending and equity underwriting
By: Steven Drucker, Manju Puri.
Contributors: Puri, Manju.; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10491; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10491.
Publisher: National Bureau of Economic Research
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "This article examines the practice of tying, which occurs when an underwriter lends to an issuer around the time of a public securities offering.  We examine whether there are efficiencies from tying lending and underwriting which lead to benefits for issuers and underwriters.  We find evidence consistent with tying occurring for issues when there are informational economies of scope from combining lending and underwriting.  Firms benefit from tying through lower financing costs, as tied issuers receive lower underwriter fees on seasoned equity offerings and discounted loan yield spreads.  These financing costs are significantly reduced for non-investment grade issuers, where informational economies of scope from combining lending with underwriting are likely to be large.  These results are robust to matching methodology developed by Heckman, Ichimura, and Todd (1997, 1998).  For underwriters, tying helps build relationships that augment an underwriter's expected revenues by increasing the probability of receiving both current and future business.  Both commercial banks and investment banks tie lending and underwriting and offer price discounts, albeit in different ways, with commercial banks discounting loan yield spreads and investment banks offering reduced underwriter spreads"--National Bureau of Economic Research web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 1/12/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.