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League table: a study of the competition to underwrite floating rate debt

Authors
Journal
Journal of International Financial Markets Institutions and Money
1042-4431
Publisher
Elsevier
Publication Date
Volume
14
Issue
4
Identifiers
DOI: 10.1016/j.intfin.2003.10.001
Keywords
  • Bank Competition
  • Client Loyalty
  • Market Share

Abstract

Abstract We find evidence of price and non-price competitions in the competition for market shares among underwriters. The market pricing for underwriter’s service is rationally determined. Gross spread is a function of cost of production and distribution, underwriter’s organizational assets, and the extent of competition. Strategic discount pricing affects market share in the short run. There exists evidence of client loyalty to an underwriter, albeit much weaker than expected. The number of effective competitors for any particular issuer is quite small, ranging from three to five. Commercial banks are more aggressive in pricing to first-time issuers and have gained limited success in attracting clients of investment banks. They expand the market by bringing in new issuers, while causing gross spread to fall.

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