Handbook of Corporate Finance Empirical Corporate Finance Volume 1

Chapter 5

BANKS IN CAPITAL MARKETS*

STEVEN DRUCKER
Columbia Business School, Uris Hall, 3022 Broadway, New York, NY 10027, USA
e-mail:[email protected]

MANJU PURI
Fuqua School of Business, 1 Towerview Drive, Duke University and NBER, Durham, NC 27708, USA
e-mail:[email protected]

Contents

Abstract 190
Keywords 190

1. Introduction 191


2. Commercial banks as underwriters: Theoretical literature 192


3. Empirical evidence on conflicts of interest 195
   3.1. Before the 1933 Glass–Steagall Act 196
   3.2. The late 1980s and beyond 200
   3.3. Mitigating conflicts of interest: Organizational structure and syndicates 203
   3.4. Conflicts of interest from equity holdings: Evidence from venture capital 205


4. Empirical evidence on competition between commercial and investment banks 207
   4.1. Underwriting fees 207
   4.2. Underwriter selection 209
   4.3. Can investment banks survive? 210


5. International evidence 211
   5.1. Japan 212
   5.2. Canada 213
   5.3. Israel 214


6. The indirect role of commercial banks on capital markets 214
   6.1. Market reaction to loan announcements, renewals, and sales 216
   6.2. Non underwriter-bank loans and public security pricing 220


7. Extensions 221
   7.1. Banks as equity holders 221

*The focus of this survey is by its very nature limited in its scope and, inevitably, we have left out many
important papers. We apologize to those who feel that their research has been ignored or misrepresented.

Handbook of Corporate Finance, Volume 1
Edited by B. Espen Eckbo
Copyright © 2007 Published by Elsevier B.V.
DOI: 10.1016/S1873-1503(06)01005-1