| This dissertation consists of two empirical essays on financial intermediation. In the first chapter, I study the relationship between investment banks' reputation and the price and quality of their underwriting services in the corporate bond market. In the existing literature, a key econometric issue that obscures correct inference is the endogeneity in the matching between clients and investment banks. In my study, I use a model that explicitly controls for this endogeneity. I find that more reputable banks obtain lower yields, but charge higher fees, while net proceeds to their clients remain higher. Consistent with certification, the yield benefit is larger for junk bonds and relationship issuers. More reputable banks underwrite less risky issues with lower covariance to their own underwriting portfolios. These findings suggest that reputable banks' underwriting decisions reflect reputation concerns, that investors infer positive information from such decisions, and that a rent is earned on reputation.; In the second chapter, my co-author and I study the impact of universal banking on US industrial firms. Specifically, we study how the deregulation that allows commercial banks to underwrite corporate securities affects these banks' clients in terms of their financing, investment, cash distribution, and accounting and stock performances. We find strong evidence that usage of universal banking services, i.e., using previous lender's underwriting services, facilitates firms' access to the capital market. Lenders' underwriting capacity is also shown to contribute to the substitution of public debt for bank loans. Tantamount to this change in financing, we find that firms using lenders' underwriting services invest more in the capital stock, pay more dividends, and experience positive abnormal stock returns. Overall the evidence in the essay suggests that universal banking has benefited client firms in the US. |
