Information Disclosure Concerns as a Limit to Competition in Investment Banking

We conjecture that issuing firms seek to avoid sharing underwriters with their product-market rivals in order to limit the risk that strategically sensitive information is leaked to a rival firm via the underwriter relationship. We investigate this conjecture in a sample of 5,272 equity deals and 12,453 debt deals by large U.S. firms between 1975 and 2003. Using several distinct sources of identification, we find that this phenomenon is at least as important in determining the choice of lead underwriter as the issuing firm’s existing relationship with the underwriter. We argue that this finding has important implications for understanding the nature of competition among investment banks, the success of entrants, and the likely impact of investment bank mergers on market power.