NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Steven Drucker

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NBER Working Papers and Publications

May 2004The Tying of Lending and Equity Underwriting
with Manju Puri: w10491
This article examines the practice of tying,' which occurs when an underwriter lends to an issuer around the time of a public securities offering. We examine whether there are efficiencies from tying lending and underwriting which lead to benefits for issuers and underwriters. We find evidence consistent with tying occurring for issues when there are informational economies of scope from combining lending and underwriting. Firms benefit from tying through lower financing costs, as tied issuers receive lower underwriter fees on seasoned equity offerings and discounted loan yield spreads. These financing costs are significantly reduced for non-investment grade issuers, where informational economies of scope from combining lending with underwriting are likely to be large. These results are r...

Published: Steven Drucker & Manju Puri, 2004. "Tying knots: lending to win equity underwriting business," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 428-435.

 
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