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Universal Banking, Asset Management, and Stock Underwriting


  • We are grateful for helpful comments from Charlie Hadlock, François Derrien, Naveen Khanna, Hyun-Seung Na, Jay Ritter, an anonymous referee, and seminar participants at Clemson University, Marquette University, Michigan State University, University of New Hampshire, the US Securities and Exchange Commission, participants at the Vanderbilt Conference on Conflicts of Interest in Financial Markets, and participants at the Financial Management Symposium on IPOs at Oxford University. We thank Tilan Tang for excellent research assistance. The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed herein are those of the author and do not necessarily reflect the views of the Commission or of the author's colleagues upon the staff of the Commission.


This paper examines institutions that underwrite IPOs and have asset management divisions from 1993 through 1998. We provide evidence that these firms use asset management funds as vehicles to help them earn more equity underwriting business. We also show that asset managers affiliated with IPO underwriters use their superior information about their own institution's IPOs to earn annualised market adjusted returns 7.6% above asset managers of firms who did not underwrite the IPO. Superior future returns by asset managers who trade affiliated IPOs are dependent on the information environment for the IPO and the underwriter reputation rank.