TY - JOUR AU - Calomiris,Charles AU - Pornrojnangkool,Thanavut TI - Relationship Banking and the Pricing of Financial Services JF - National Bureau of Economic Research Working Paper Series VL - No. 12622 PY - 2006 Y2 - October 2006 UR - http://www.nber.org/papers/w12622 L1 - http://www.nber.org/papers/w12622.pdf N1 - Author contact info: Charles W. Calomiris Graduate School of Business Columbia University 3022 Broadway Street, Uris Hall New York, NY 10027 Tel: 212/854-8748 Fax: 212/316-9219 E-Mail: cc374@columbia.edu Thanavut Pornrojnangkool The World Bank 1818 H Street, N.W. Washington, DC 20433 E-Mail: BobbyTP@aol.com AB - We investigate how banking relationships that combine lending and underwriting services affect the terms of lending, through both loan supply- and loan demand-side effects, and the underwriting costs of debt and equity issues. We capture and control for firm characteristics, including differences in the sequences of firm financing decisions (which we argue are likely to capture important cross-sectional heterogeneity, and which previously have been ignored in the literature). We construct a structural model of lending, which separately identifies loan supply and loan demand. Our approach results in significant improvement in the explanatory power of our regressions when compared to prior studies. We find no evidence that universal banks under-price loans to win underwriting business. Instead, we find that universal banks charge premiums for loans and underwriting services to extract value from combined lending and underwriting relationships. We also find that universal banks (as opposed to stand alone investment banks) enjoy cost advantages in both lending and underwriting, irrespective of relationship benefits. Part of the advantage borrowers may enjoy from bundling products may be a form of liquidity risk insurance, which is manifested in a reduced demand for lines of credit. We also find evidence of a “road show� effect; firms that engage in debt underwritings enjoy loan pricing discounts on the loans that are negotiated at times close to the debt underwritings. ER -