Investment Bank's Strategy Choice And Its Effects On Performance

Influenced by the reform of the capital market, as well as the changes of domestic and foreign economic environment, China's investment banking industry is currently undergoing a transitional process, which is characterized by the shifting from extensive business mode relying on political resources and market fund to intensive business mode relying on pricing abilities and syndicate network. China's investment banks now lay more and more emphases on syndicate network, which helps the banks to spread risks, broaden distribution channels, raise status in the industry, etc., and investment banking industry therefore need the guidance of relevant theories. Although the researches on the strategies and performance of investment banks from the perspective of syndicate network provide some theoretical support, there are many theoretical gaps. The neglect of meso-level network structures, the divergence of influence mechanism of strategy selection on performance, and the vacancy of research on the syndicate networks of new economies all suggest the need for further research on the relevant fields. From the background of China's investment banking industry, the research aimed at the current theoretical gaps hence has both theoretical and practical significances concerning about the sound development and successful transition of the industry.Therefore, from the perspective of meso-level network structure amid micro dyads and macro industry network, this paper focuses on clique, a pervasive meso-network structure which exerts direct influence on the actors within. This paper demonstrates the outside and inside factors which influence the "embedding-extension" strategy selection of investment banks in local network and the influence mechanism of the strategy behaviors on performance. Based on review of relevant theories, field interviews, and analysis of topology of syndicate network, this paper proposes hypotheses concerning about the following subjects:(1) How does the clique environment outside investment bank influence its selection of strategies? This paper identifies three factors influencing the strategic selection between embedding and extension:size heterogeneity, function complementarity and clique embeddedness, and analyzes the influencing mechanism of these three factors on the strategic selection.(2) How do the performance aspiration gaps influence the strategic selection of investment banks? This paper draws lessons from the performance feedback theories, and extends further to categorize the performance aspiration gaps into historical gap representing the trend of the performance and peer gap formed through the comparison with the performance of peer investment banks. This paper then exams the interaction and influences of combinations of both performance aspiration gaps and their combined effects on the strategic selection of investment banks.(3) What is the influencing mechanism of strategic selection of investment bank on its performance, and why are there divergences among research results on the mechanism? This paper breaks the performance of investment bank into two parts:opportunity of underwriting and the accordance degree of cooperation, and proposes the two-way influencing mechanism of strategic selection of investment bank on its performance.Using public information platform of capital market and third-party database, the data of all1023IPO underwritten by191investment banks between1994and2010in Hong Kong's capital market are collected and empirical study is performed in order to test the hypotheses proposed.Through theoretical analysis and empirical study, three conclusions are drawn:(1) The high degree of size heterogeneity, as well as the low degree of function complementarity and clique embeddedness will lead the investment bank to cross the border of clique, and to perform network extension behavior.(2) Historical performance aspiration gap, peer performance aspiration gap, as well as their combination will influence the investment bank's strategic selection significantly, but with different effects.(3) The investment bank's network extension behavior which crosses the structure holes between cliques will affect the opportunity of underwriting positively, but will have negative impact on the accordance degree of cooperation. The network embedding behavior, however, has just opposite effects.Conclusion listed above facilitated the understanding of selection of strategics and performance of investment bank. Compared with relevant studies, the innovations of this paper are demonstrated as below:(1) from the perspective of meso-level network structure, this paper identifies the factors which affect the strategic selection between embedding and extension, and illuminates the influencing mechanism of these factors on the selection. This forms the missing link between micro dyads and macro industry network.(2) This paper illuminates the two-way influencing mechanism of strategic selection of investment bank on its performance. This helps to fill up the current theoretical gaps and contributes to the literature on the field of investment banking.(3) This paper demonstrates the effects of performance aspiration gaps on the strategic selection between embedding and extension, which contributes to the performance feedback theories.(4) The results based on the empirical evidence of Hong Kong's investment banking industry offer highly pertinent guidance to the investment banks domiciled in Chinese mainland.Regardless of the academic attainment, there are still a lot to be improved. The limitations of this study and issues which need to be studied further arc presented in the last part of the paper.