روابط بانکی و دسترسی به بازارهای سرمایه: شواهد از سیستم اصلی بانک ژاپن

We study the role of banking relationships in IPO underwriting. When a firm in Japan goes public, it can engage an investment bank that is related through a common main bank, or can select an alternative investment bank. The main bank relationship can be an efficient way for the investment bank to acquire information generated by the main bank, but may give rise to conflicts of interest. We find that main bank relationships give small issuers increased access to equity capital markets, but that issuers of large IPOs often switch to non-related investment banks that are capable of managing large offerings. While investment banks seek to exploit bargaining power with related issuers, issuers respond to expected high issue cost by switching to non-related investment banks. The net result is that total issue costs through related and non-related investment banks are similar. With respect to aftermarket performance and use of proceeds, we find no evidence of conflict of interest or self-dealing for either the main bank or the investment bank.

Policy makers in many countries have grappled with whether integration of commercial banking and investment banking services is likely to benefit or harm corporate clients and their investors. If commercial banks are integrated into investment banking, the banks might engage in “self-dealing” by underwriting public offerings of credit clients to effect wealth transfers to themselves. Further, integrated banks may gain bargaining power over credit clients who seek investment banking services. On the other hand, the commercial bank’s experience with its clients could reduce information costs, resulting in greater access to capital markets. In the US, early controversy concerning allegations of abuse by commercial banks in securities underwriting resulted in the Glass–Steagall Act (The Banking Act of 1933), provisions of which prohibited affiliations between investment banks and commercial banks. Repeal of these provisions in l999 signaled the view, expressed in congressional hearings, that potential benefits of improved access outweigh potential conflicts of interest when banks provide both lending and underwriting services.3 One argument in favor of repeal was that integration could increase capital market access for small, young, and/or relatively unknown firms. Investment banks can be related to commercial banks in various ways, ranging from integration through a common holding company (as in the US) to overlapping ownership and management (as in Japan, where, banks are related through keiretsu structures). In Japan, business firms have credit relationships with commercial “main banks”. Main banks, in turn, may hold equity interests in their credit clients, including investment banks. In this paper we study the impact of the relationships among firms, main banks, and investment banks in Japan’s initial public offering (IPO) underwriting market. Issuing firms can choose whether to engage an investment bank that is related, by virtue of sharing the same main bank, or to engage a non-related investment bank. Previous studies of banking relationships and underwriting markets generally have not found evidence of conflicts of interest. These studies have focused on debt, preferred equity, or seasoned equity offerings (SEOs). A stronger test of conflict of interest is to examine those securities for which informational asymmetries are likely to be material, such as IPOs. Furthermore, there is little modern evidence of how relationships between commercial and investment banks facilitate market access. Accordingly, in this paper we examine the pricing and performance of IPOs. The Japanese IPO market in the late l990s is particularly well-suited to testing for conflicts of interest because informational asymmetries are likely to be material, and because the period is one of extreme financial system stress for Japan. Both information asymmetry and financial system stress increase incentives for bankers to behave opportunistically. By focusing on IPOs in Japan, we “stack the deck” in favor of finding evidence of conflicts, thereby addressing an important aspect of banking relationships. The time period has the additional advantage of spanning two different underwriting regimes – a hybrid auction regime (variants of which are in use in several countries) and a book-building regime (similar to the US method). As we explain, main bank relationships are likely to be more important in the book-building regime. Therefore, the contrast provides additional evidence of how relationships affect capital market access. To evaluate whether relationships lead to conflicts of interest, we also examine the impact of the issuer’s choice to engage a related investment bank on a spectrum of IPO underwriting outcomes, including: total issue cost (underwriter fees plus underpricing), underpricing, aftermarket performance, and use of issue proceeds. Our IPO results add to and complement the evidence regarding the effects of banking relationships on SEOs and debt offerings in the US. In the IPO market, conflicts of interest can be manifested in several ways. First, by misleading investors about value, a related underwriter can attempt to effect a wealth transfer from IPO investors to the issuer and/or the commercial bank. Second, if the commercial bank’s lending activities give the related investment bank bargaining power, the investment bank can attempt to exploit its information advantage by charging higher fees or underpricing the issue more than would be possible in a competitive market. In this case, the wealth transfer is from the issuer to the underwriter and IPO investors. (Underwriters benefit through lower selling cost and because they may be compensated in indirect ways for allocating underpriced shares to favored investors.) Third, issuer value can be reduced by inappropriately using proceeds to pay off a risky outstanding loan from the commercial bank, thereby harming existing investors. As an alternative to the conflict of interest hypothesis, when an issuer is related to an investment bank through a common commercial bank, the relationship may lower the costs of obtaining information. The information hypothesis suggests that relationships between commercial banks and investment banks benefit issuers, possibly through lower issue costs, and increase access to capital markets. Consistent with the information hypothesis, our results show that when small firms undertake small IPOs they tend to engage their related investment banks. While, consistent with conflict of interest, the evidence suggests that related investment banks try to underprice more, issuing firms are able to respond by selecting non-related investment banks. The result is that issue costs and long-run returns are no higher for issuers who elect to use a related investment bank. We find no significant evidence that issuers or capital market investors in Japan are harmed by relationships between main banks and investment banks, and instead find that banking relationships increase capital market access for small firms making small issues.

In summary, our results complement and extend those of studies of banking relationships in the US. Using data on IPOs during a period of financial system stress in Japan, the evidence indicates that main bank relationships to investment banks are valuable to issuers and do not appear to give rise to conflicts of interest. Main bank lending relationships appear to give small firms, making small issues, greater assess to equity capital markets than they would have if commercial banks and investment banks were not related. Large issuers whose main bank relationships are with small investment banks appear to be able to switch to major, non-related investment banks that are capable of managing larger offerings. While related investment banks seek to exploit relationship-based bargaining power by charging higher fees and/or by underpricing more, our evidence indicates that bargaining power is limited and that issuers respond to high expected issue cost by using non-related investment banks. On average, holding other factors constant, issuers who have related investment banks have greater access to equity capital markets and incur total issue costs (fees plus underpricing) that are comparable to those incurred by issuers who do not have related investment banks. We find no significant evidence that IPOs underwritten by related investment banks are systematically over-valued by investors. We also find no significant evidence that main banks attempt to exploit their relationships to issuers and underwriters by selling overvalued shares or using proceeds disproportionately to extinguish issuer’s debt owed to the main bank. The findings are important for policymakers who are concerned that close relationships between commercial banks and investment banks may result in conflicts of interest and self-dealing. Such problems are most acute when financial markets are under stress and for those securities that are subject to significant informational asymmetries, like IPOs. Yet, even under such conditions we find that issuing firms benefit from relationships to commercial banks that are affiliated with investment banks. In addition, the importance of relationships is apparent across two very different types of IPO underwriting processes – one based on book building and one based on a hybrid auction method.