The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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The Value of Investment Banking Relationships: Evidence from the Collapse of Lehman Brothers
Published: 01/17/2012 | DOI: 10.1111/j.1540-6261.2011.01711.x
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.
Wanna Dance? How Firms and Underwriters Choose Each Other
Published: 09/16/2005 | DOI: 10.1111/j.1540-6261.2005.00804.x
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.