The Journal of Finance

Wanna Dance? How Firms and Underwriters Choose Each Other

Published: 9/16/2005,  Volume: 60,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2005.00804.x  |  Cited by: 225

CHITRU S. FERNANDO, VLADIMIR A. GATCHEV, PAUL A. SPINDT

We develop and test a theory explaining the equilibrium matching of issuers and underwriters. We assume that issuers and underwriters associate by mutual choice, and that underwriter ability and issuer quality are complementary. Our model implies that matching is positive assortative, and that matches are based on firms' and underwriters' relative characteristics at the time of issuance. The model predicts that the market share of top underwriters and their average issue quality varies inversely with issuance volume. Various cross‐sectional patterns in underwriting spreads are consistent with equilibrium matching. We find strong empirical confirmation of our theory.

The Value of Investment Banking Relationships: Evidence from the Collapse of Lehman Brothers

Published: 1/17/2012,  Volume: 67,  Issue: 1  |  DOI: 10.1111/j.1540-6261.2011.01711.x  |  Cited by: 128

CHITRU S. FERNANDO, ANTHONY D. MAY, WILLIAM L. MEGGINSON

We examine the long‐standing question of whether firms derive value from investment bank relationships by studying how the Lehman collapse affected industrial firms that received underwriting, advisory, analyst, and market‐making services from Lehman. Equity underwriting clients experienced an abnormal return of around −5%, on average, in the 7 days surrounding Lehman's bankruptcy, amounting to $23 billion in aggregate risk‐adjusted losses. Losses were especially severe for companies that had stronger and broader security underwriting relationships with Lehman or were smaller, younger, and more financially constrained. Other client groups were not adversely affected.

Dynamic Self‐Fulfilling Fire Sales

Published: 7/28/2026,  Volume: ,  Issue:   |  DOI: 10.1111/jofi.70069  |  Cited by: 1

PAYMON KHORRAMI, FERNANDO MENDO

Why do fire sales occur if many risks are hedgeable? We study a version of Brunnermeier and Sannikov (2014, American Economic Review 104, 379–421) in which all fundamental risks can be hedged frictionlessly. Our analysis shows that fire sales are inherently self‐fulfilling. Fundamental shocks can never cause fire sales, and an efficient, safe equilibrium exists. On the other hand, there exists an equilibrium in which agents coordinate fire sales on nonfundamental shocks. A simple refinement based on vanishingly small perceived fundamental risk eliminates the safe equilibrium and selects the fire‐sale equilibrium as the unique outcome.

Fire‐Sale Spillovers and Systemic Risk

Published: 4/14/2021,  Volume: 76,  Issue: 3  |  DOI: 10.1111/jofi.13010  |  Cited by: 189

FERNANDO DUARTE, THOMAS M. EISENBACH

We identify and track over time the factors that make the financial system vulnerable to fire sales by constructing an index of aggregate vulnerability. The index starts increasing quickly in 2004, before most other major systemic risk measures, and triples by 2008. The fire‐sale‐specific factors of delevering speed and concentration of illiquid assets account for the majority of this increase. Individual banks' contributions to aggregate vulnerability predict other firm‐specific measures of systemic risk, including SRISK and CoVaR. The balance‐sheet‐based measures we propose are therefore useful early indicators of when and where vulnerabilities are building up.

On Stock Market Returns and Returns on Investment

Published: 6/1994,  Volume: 49,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1994.tb05151.x  |  Cited by: 39

FERNANDO RESTOY, G. MICHAEL ROCKINGER

This article presents general conditions under which it is possible to obtain asset pricing relations from the intertemporal optimal investment decision of the firm. Under the assumption of linear homogeneous production and adjustment cost functions (the Hayashi (1982) conditions), it is possible to establish, state by state, the equality between the return on investment and the market return of the financial claims issued by the firm. This result proves to be, in essence, robust to the consideration of very general constraints on investment and the inclusion of taxes.

Implications of Keeping‐Up‐with‐the‐Joneses Behavior for the Equilibrium Cross Section of Stock Returns: International Evidence

Published: 11/25/2009,  Volume: 64,  Issue: 6  |  DOI: 10.1111/j.1540-6261.2009.01515.x  |  Cited by: 41

JUAN‐PEDRO GÓMEZ, RICHARD PRIESTLEY, FERNANDO ZAPATERO

This paper tests the cross‐sectional implications of “keeping‐up‐with‐the‐Joneses” (KUJ) preferences in an international setting. When agents have KUJ preferences, in the presence of undiversifiable nonfinancial wealth, both world and domestic risk (the idiosyncratic component of domestic wealth) are priced, and the equilibrium price of risk of the domestic factor is negative. We use labor income as a proxy for domestic wealth and find empirical support for these predictions. In terms of explaining the cross‐section of stock returns and the size of the pricing errors, the model performs better than alternative international asset pricing models.