How Investment Banks React to a Decline in League Table Rankings. Evidence from U.S. Corporate Bonds

Christian Fleischer

Masters Thesis from the year 2014 in the subject Business economics - Investment and Finance, grade: 1,0, Karlsruhe Institute of Technology (KIT) (Finanzen, Banken und Versicherungen (FBV)), language: English, abstract: This paper being the first to examine the phenomenon of league table competition in the market of debt underwriting, we show significant influence of the recent league table performance on the behavior of investment banks in the U.S. corporate bond market. Similar to results for the credit rating market, we document a focus on bonds of higher quality for those investment banks, which faced a decline in league table rankings compared to the previous year. This perspective further differentiates, when we expand our analysis by the fraction of revenues an underwriter generates by investment banking services. While underwriters with a diversified revenue base behave as suggested by our initial results, we find specialized investment banks to even lower certification standards. Finally, we show the compensation of underwriters to be influenced by their recent league table performance. These results are consistent with previous findings and further illustrate the motivation of investment banks to compete for the best ranks in the league tables.