This paper being the first to examine the phenomenon of league table competition in the market of debt underwriting, we show significant influence of the recent league table performance on the behavior of investment banks in the U.S. corporate bond market. Similar to results for the credit rating market, we document a focus on bonds of higher quality for those investment banks, which faced a decline in league table rankings compared to the previous year. This perspective further differentiates, when we expand our analysis by the fraction of revenues an underwriter generates by investment banking services. While underwriters with a diversified revenue base behave as suggested by our initial results, we find specialized investment banks to even lower certification standards. Finally, we show the compensation of underwriters to be influenced by their recent league table performance. These results are consistent with previous findings and further illustrate the motivation of investment banks to compete for the best ranks in the league tables.
Table of Contents
- 1. Introduction
- 2. Review of related literature and hypotheses
- 2.1 The role of reputation in debt underwriting and other investment banking disciplines
- 2.2 Measuring reputation
- 2.3 League table competition and hypotheses
- 3. Description of employed variables
- 3.1 Measuring bond quality and underwriter compensation
- 3.2 League table performance and investment banking revenue share
- 3.3 Control variables
- 4. Sample construction, descriptive statistics and methodology
- 4.1 Used data and sample construction
- 4.2 Descriptive statistics
- 4.3 Methodology
- 5. Empirical findings and interpretation
- 5.1 League table performance and quality-based reputation
- 5.2 Investment banking revenues
- 5.3 League table performance and underwriter compensation
- 5.4 Interpretation of results
Objectives and Key Themes
This study investigates how investment banks in the U.S. corporate bond market react to declines in league table rankings. The primary objective is to analyze the relationship between league table performance and the quality of bonds underwritten by these banks. The research explores whether changes in ranking influence underwriter behavior, particularly concerning the quality of bonds they choose to underwrite. * The impact of league table rankings on investment bank reputation. * The relationship between league table performance and the quality of underwritten bonds. * The influence of investment banking revenue dependency on underwriter behavior. * Strategies employed by investment banks to improve their league table rankings. * Different business models of underwriters in the U.S. corporate bond market.Chapter Summaries
1. Introduction: This chapter introduces the concept of league tables in the investment banking industry, highlighting their importance as a measure of reputation and prestige. It emphasizes the competitive nature of league table rankings and the significant influence they hold on future income and fees. The study focuses on the U.S. corporate bond market as a test ground due to its high competitiveness and the impact of the Gramm-Leach-Bliley Act on the market structure. The chapter establishes the research question: how do investment banks react to a decline in league table rankings? It specifically notes the study's unique focus on analyzing the influence of rank changes on underwriter behavior, unlike previous research that primarily used rankings to categorize banks into reputable and non-reputable groups.
2. Review of related literature and hypotheses: This chapter reviews existing literature on reputation in investment banking, particularly in debt underwriting. It discusses various methods for measuring reputation and examines the existing literature regarding league table competition. It lays the groundwork for the hypotheses that will be tested in the empirical analysis. The chapter synthesizes existing research on reputation and league table competition to establish a theoretical framework for understanding the behavior of investment banks in the face of changing rankings.
3. Description of employed variables: This chapter details the variables used in the empirical analysis. It carefully defines how bond quality, underwriter compensation, league table performance, investment banking revenue share, and relevant control variables will be measured. The chapter provides a clear and concise explanation of the data and variables ensuring the methodology is transparent and understandable to the reader. The explicit definition of variables is crucial for understanding the subsequent analysis and interpretation of results.
4. Sample construction, descriptive statistics and methodology: This chapter describes the data set used in the study, outlining the sample construction process. It presents descriptive statistics of the key variables and details the econometric methodology employed for the analysis. The chapter includes a clear explanation of the statistical techniques used to test the research hypotheses and draws on existing research on similar statistical methods and data sets in the field. The methodology section aims to ensure that the research is robust, reliable and reproducible.
5. Empirical findings and interpretation: This chapter presents the empirical findings from the study's analysis of the relationship between league table performance and the quality of bonds underwritten. The results are interpreted in detail, considering the implications for various aspects of investment bank behavior. It explains the observed relationships between league table performance and various indicators of bond quality, compensation, and revenue streams. The interpretation section of this chapter will likely offer a discussion of the key findings and their implications for the understanding of investment bank behavior in the U.S. corporate bond market.
Keywords
Investment banks, league table rankings, reputation, debt underwriting, corporate bonds, U.S. bond market, bond quality, underwriter compensation, investment banking revenue, Gramm-Leach-Bliley Act, league table competition, business models.
Frequently Asked Questions: Analysis of Investment Bank Behavior in Response to League Table Rankings
What is the main focus of this study?
This study investigates how investment banks in the U.S. corporate bond market respond to changes in their league table rankings. The primary objective is to analyze the relationship between league table performance and the quality of bonds underwritten by these banks. It examines whether changes in ranking influence underwriter behavior, particularly concerning the bond quality they choose to underwrite.
What are the key themes explored in this research?
The research explores several key themes, including: the impact of league table rankings on investment bank reputation; the relationship between league table performance and the quality of underwritten bonds; the influence of investment banking revenue dependency on underwriter behavior; strategies used by investment banks to improve their league table rankings; and the different business models of underwriters in the U.S. corporate bond market.
What is the importance of league tables in the investment banking industry?
League tables are highlighted as crucial measures of reputation and prestige within the investment banking industry. They significantly influence future income and fees, making them a key factor in the competitive landscape.
How does this study differ from previous research on league tables?
Unlike previous research that primarily used rankings to categorize banks, this study uniquely focuses on analyzing the influence of *changes* in league table rankings on underwriter behavior.
What variables are used in the empirical analysis?
The study employs variables measuring bond quality, underwriter compensation, league table performance, investment banking revenue share, and various control variables. The precise measurement of each variable is detailed in the relevant chapter.
What methodology is used in this research?
The study utilizes econometric methods to analyze the data. The specific statistical techniques employed are detailed in Chapter 4, along with a description of the data set and sample construction process. The methodology aims for robustness, reliability, and reproducibility.
What are the key findings of the empirical analysis?
Chapter 5 presents the empirical findings concerning the relationship between league table performance and the quality of underwritten bonds, underwriter compensation, and investment banking revenue. The interpretation of these findings explores their implications for investment bank behavior.
What data is used in this study?
The study utilizes a specific data set (details provided in Chapter 4) related to the U.S. corporate bond market. The sample construction process and descriptive statistics of the key variables are also detailed in Chapter 4.
What is the significance of the Gramm-Leach-Bliley Act in this context?
The study mentions the Gramm-Leach-Bliley Act's impact on the structure of the U.S. corporate bond market, highlighting its relevance to the competitive environment analyzed.
What are the key words associated with this research?
Key words include: Investment banks, league table rankings, reputation, debt underwriting, corporate bonds, U.S. bond market, bond quality, underwriter compensation, investment banking revenue, Gramm-Leach-Bliley Act, league table competition, and business models.
- Quote paper
- Christian Fleischer (Author), 2014, How investment banks react to a decline in league table rankings. Evidence from U.S. corporate bonds, Munich, GRIN Verlag, https://www.grin.com/document/274820
