Title: Integration of Lending and Underwriting: Implications of Scope Economies
Abstract: We present a model in which informational economies of scope that provide a cost advantage to universal banks offering "one-stop" shopping for lending and underwriting services also enable these intermediaries to "lock in" their clients' subsequent business. This (limited) market power of universal banks reduces their incentive, relative to that of investment banks, to undertake costly effort in underwriting their clients' securities. The consequent reduction in firms' likelihood of successful security issues with universal bank underwriters prevents these intermediaries from using their scope economies to completely dominate their markets. Our analysis identifies economy, intermediary, and firm characteristics that motivate either the integration or segmentation of underwriting and bank lending. Our results also have implications for financial innovation and capital market development in markets characterized by the integration of financial services. Some of our empirical implications have not been tested; others can be compared with findings in Kroszner and Rajan (1994).
Publication Year: 2002
Publication Date: 2002-01-01
Language: en
Type: article
Indexed In: ['crossref']
Access and Citation
Cited By Count: 16
AI Researcher Chatbot
Get quick answers to your questions about the article from our AI researcher chatbot