Main bank relationships and underwriter choice

We examine why independent securities companies and bank subsidiary securities companies can coexist as underwriters in the Japanese corporate bond market in a period when the main bank system is very important in the Japanese financial system. While it has already been found that lending and shareholding relationships between main banks and issuers are not important determinants of underwriting commissions or yield spreads, they are found to be important determinants of lead underwriter choices. The findings about the impact of main bank relationships on underwriter choices suggest that an issuer with a strong main bank shareholding relationship chooses the main bank subsidiary securities company as the lead underwriter, and is unlikely to choose an independent securities company. An issuer with a larger sized bond issue tends to choose an independent securities company as the lead underwriter for its marketing ability. The findings from four different models consistently support the idea that independent securities companies have an advantage in marketing ability, and the main bank subsidiary securities company has an advantage in the information generated through the main bank relationship.