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  • William J. Wilhelm Jr.

    1. is Associate Professor of Finance at the Wallace E. Carroll School of Management at Boston College.
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      I am grateful to Thomas Chemmanur and Alec Petro for discussions that have helped to clarify my thoughts on several of the issues at hand. Bruno Biais, Walid Busaba, Alexander Ljundqvist, Alan Marcus, Pegaret Pichler, and Patrick Schumacher also provided helpful comments. My e-mail address is


The production “technology” of investment banking, particularly in the pricing and distribution of securities offerings, has long depended on the ability of bankers to build and maintain networks of relationships with institutional investors and client firms. Among other benefits, these relationships enabled banks to economize on communications with investors at a time when communicating with the investment community was quite costly. But recent advances in information technology are forcing banks to reevaluate this relationship-based technology. For example, Goldman Sachs recently purchased a stake in Wit Capital's efforts to build a retail distribution channel via the Internet. And William Hambrecht, founder of Hambrect & Quist, has gone so far as to propose that IPOs be put up for auction over the Internet.

This article offers both historical and economic perspective on these technological innovations in investment banking. In so doing, it provides a framework for thinking about how this segment of the industry is likely to evolve in the near future. It also discusses how advances in information technology coupled with the increasing codification of investment banking practices could reduce the central role of human capital and relationships elsewhere within investment banks, and how this might influence both the organization of individual banks and the industry in general.

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