VGSF - WU Vienna - LC

Giorgio Ottonello, Nova School of Business and Economics

Campus WU D3.0.233 12:00 - 13:00

Organizer WU Vienna

The Fin­ance Brown Bag Sem­inar is held by the In­sti­tute for Fin­ance, Bank­ing and In­sur­ance (WU Vi­enna) and the Vi­enna Gradu­ate School of Fin­ance (VGSF). It serves as a present­a­tion plat­form for PhD stu­dents, fac­ulty mem­bers, and vis­it­ors. An over­view of BBS on the web­site of the In­sti­tute for Fin­ance, Bank­ing and In­sur­ance.


Gior­gio Ot­ton­ello, Nova School of Busi­ness and Eco­nom­ics

Bank con­nec­tions and firms' ac­cess to the bond mar­ket

In­sti­tu­tional in­vestor­s-­dom­in­ated cor­por­ate bond mar­kets have be­come an in­creas­ingly im­port­ant source of fin­an­cing for U.S. com­pan­ies. We ar­gue that firms' ac­cess to the bond mar­ket is con­strained by their bank's net­work of in­vestors. Us­ing a hand-­col­lec­ted data­set of ag­greg­ate port­fo­lio trans­ac­tions between a bank's se­cur­it­ies dealer and their mu­tual fund cli­ents, we map trad­ing net­works of banks' un­der­writers and as­set man­agers between 1995 and 2017. We find that higher ex­pos­ure to bond in­vestors through bank con­nec­tions im­proves a firm's ac­cess to bond fin­an­cing and al­lows for lar­ger bond is­su­ances. We also show that higher de­mand from the bank's net­work of in­vestors al­lows firms to lower their cost of fin­an­cing. To identify the causal ef­fect of bank con­nec­tions on a firm's fin­an­cing de­cisions, we ex­ploit exo­gen­ous shocks to the form­a­tion of un­der­writer­-is­suer re­la­tion­ships and to the cap­ital sup­plied by in­vestors in the bank's net­work. In ex­amin­ing how bank con­nec­tions in­flu­ence fin­an­cing de­cisions, we find that the bank's net­work of in­vestors provides guar­an­teed de­mand for a firm's bonds. Our find­ings add to the de­bate on whether the ex­ist­ing pro­cess for rais­ing cor­por­ate debt is an ef­fi­cient mech­an­ism for bond is­suers.

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