A Theory of the Syndicate: Form Follows Function


  • Pegaret Pichler,

  • William Wilhelm

  • * Pichler is from the Carroll School of Management, Boston College; Wilhelm is from Saïd Business School, University of Oxford. We thank Andres Almazan, Thomas Chemmanur, Michel Habib, Cliff Holderness, Edie Hotchkiss, Naveen Khanna, Nathalie Moyen, Jay Ritter, Sheridan Titman, participants in the European Union TMR workshop on Initial Public Offerings at the London Business School and participants in seminars at CUNY Baruch College, Michigan State, and The University of Texas at Austin for helpful comments. We are particularly grateful to Rick Green (the editor) and our referee who provided numerous suggestions and to Mike Fishman for his careful insight on an earlier version of the paper. This paper was presented at the 1999 Western Finance Association and European Finance Association meetings. Wilhelm was supported in part by a grant from the Victor R. Simone, Sr. Research Fund at Boston College.


We relate the organizational form of investment banking syndicates to moral hazard in team production. Although syndicates are dissolved upon deal completion, membership stability across deals represents a barrier to entry that enables the capture of quasirents. This improves incentives for individual bankers to cultivate investor relationships that translate into greater expected proceeds. Reputational concerns of lead bankers amplify the effect. We derive conditions under which restricted entry and designation of a lead banker strictly Pareto dominate, in which case it is also strictly Pareto dominant for the syndicate's fee to be greater than members' cost of participation.