Investment Banking and Security Market Development: Does Finance Follow Industry?
IMF Working Papers, July 1, 2001
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- Investment Banking and Security Market Development: Does Finance Follow Industry?
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Bibliographic details
- Authors: Bharat Narendra Anand, Alexander Galetovic P.
- Published: July 1, 2001
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451851397.001
Summary
- Long-term relationships between business firms and investment banks are pervasive in developed security markets.
- There is evidence that better monitoring and information result from these relationships.
- Security markets should allocate resources better when an investment banking industry exists.
- The study examines the necessary conditions for the emergence of sustainable relationships and explores whether policy can foster them.
- The authors show that policy can help alleviate the costs of relationships, but an investment banking industry will not emerge with only a small number of large firms.
Key Findings
- Long-term firm–investment bank relationships improve monitoring and information.
- Existence of an investment banking industry is associated with better resource allocation in security markets.
- Policy interventions can reduce the costs associated with establishing and maintaining these relationships.
- A minimal market structure condition: an investment banking industry will not emerge when the market contains only a small number of large firms.
Policy Implications and Recommendations
- Policy can play a facilitating role in fostering firm–investment bank relationships by alleviating relationship costs.
- However, policy alone cannot substitute for market structure: sufficient diversity in firm size and numbers appears necessary for an investment banking industry to develop sustainably.
- Policymakers should consider measures that reduce transaction and relationship formation costs while also supporting a sufficiently broad and competitive firm base.
Publication and Metadata
- Authors: Bharat Narendra Anand, Alexander Galetovic P.
- Publication date: July 1, 2001
- Series: IMF Working Papers
- Series/Issue: Working Paper No. 2001/090; Issue: 090
- Pages: 26
- Volume: 2001
- DOI: https://doi.org/10.5089/9781451851397.001
- Stock No: WPIEA0902001
- ISBN: 9781451851397
- ISSN: 1018-5941
- Subject: Banking, Business enterprises, Commercial banks, Competition, Economic sectors, Financial institutions, Financial markets, Financial services, Investment banking, Securities markets
- Keywords: Business enterprises, Commercial banks, Competition, firm-commitment contract, firm-investment bank relationship, Global, high-volume firm, Investment banking, investment banking industry, low-volume firm, relationships, Securities markets, size distribution of firms, telecomm company CTC, WP
IMF Working Paper — views expressed are those of the author(s) and do not necessarily represent those of the IMF or IMF policy.
Content in this bundle
- Investment Banking and Security Market Development: Does Finance Follow Industry? - WP/01/90