FIN-02-007 |
NYU Stern School of Business |
March 2002
Anthony Saunders and Roger D. Stover
ABSTRACT
Recent studies have expanded the commercial bank certification hypothesis to include banks acting in an underwriting capacity. This paper further develops that research by focusing on the industrial revenue bond market in which banks have the unique opportunity to
simultaneously act as both credit guarantor and underwriter. When explicitly allowing for bank-issued standby letters of credit (guarantees), we find significantly greater yield spreads for those bonds underwritten by commercial banks compared to bonds underwritten by investment banks. Overall, no net benefit appears to accrue to the bond issuer when attempting to achieve joint (or double) certification benefits by employing commercial banks as both credit guarantor and underwriters except in the special case where the same bank acts as both guarantor and
underwriter. This limited certification effect is further validated when the credit quality of
participating banks is accounted for. This result is consistent with an "economy of scope" in
monitoring and reusing information.
Anthony Saunders
Institution: Leonard N. Stern School of Business, New York University
Telephone: 212-998-0711
Fax: 212-995-4233
Email: asaunder@stern.nyu.edu
Home Page: http://www.stern.nyu.edu/~asaunder
Roger D. Stover
Institution: 103 E. O. Building, College of Business at Iowa State University, Ames, IA 50011
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