Essays on the underwriting activities of commercial bank holding companies

Essay one examines how the value of the equity of financial firms reacts on dates associated with regulatory and legislative reforms of the Glass-Steagall Act of 1933. The passage of the Gramm-Leach-Bliley Financial Modernization Act of 1999 was associated with abnormal returns rarely observed in finance research. These unusual abnormal market returns were found for several firm classifications, including security brokers and dealers, large investment banks, large bank holding companies (BHCs), Section 20 BHCs, and insurance providers. The Federal Reserve's regulatory relaxations of Glass-Steagall had a less dramatic impact on the market returns of the firms examined. However, security broker and BHC firms experienced negative abnormal returns on dates associated with firewall relaxations, consistent with market concerns about potential conflicts of interest associated with financial modernization.; Essay two compares underwriting performance by commercial bank-affiliated firms (Section 20's) and traditional investment banks over the period 1995–98. We find that gross spreads are lower in the case of Section 20 underwritings, but that yield spreads are not. We find no evidence that a prior commercial bank lending relationship influences underwriting yields for any type of issue. Our results also fail to confirm earlier evidence that collective Section 20 underwritings produce a favorable competitive effect on gross spreads and yield spreads.; Essay three focuses on relative equity issue costs at commercial bank-affiliated and investment bank underwriters over the period 1995–99. We find some distinctive differences among the factors influencing gross spreads at the commercial bank-affiliated underwriters relative to investment banks, primarily in the set of variables we identify with the certification role of underwriters. The differences are consistent with theories that suggest that commercial bank organizations possess unique technologies for managing information and/or that Section 20 firms can exploit diversification benefits from BHC affiliation. This interpretation is strengthened by the lack of significant differences in SEO underwriter spreads. The relative advantage that Section 20s possess in monitoring capabilities or technologies for managing information problems appear to be irrelevant when information is readily and cheaply available. The observed results are also consistent with Hansen's (2000) argument that underwriters compete for business on several different dimensions.