Abstract
We formalize the idea that a financial conglomerate may utilize commercial banking activities to cross-subsidize investment banking through bundled offers. The investment banking sector entails supra-normal profits due to incentive problems with security underwriting. Universal banks may aim to capture (some of) those profits by providing discounts on commercial loans. This practice has an adverse effect on commercial banks' monitoring incentives, encouraging the pursuit of private rents by entrepreneurs. It also leads to lower underwriting fees and a lower probability of successful public offerings. The social welfare effects of universal banking can be either positive or negative.
| Original language | English |
|---|---|
| Pages (from-to) | 48-55 |
| Number of pages | 8 |
| Journal | International Journal of Industrial Organization |
| Volume | 43 |
| DOIs | |
| Publication status | Published - 2015 Nov 1 |
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All Science Journal Classification (ASJC) codes
- Industrial relations
- Aerospace Engineering
- Economics and Econometrics
- Economics, Econometrics and Finance (miscellaneous)
- Strategy and Management
- Industrial and Manufacturing Engineering
Cite this
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Monitoring, cross subsidies, and universal banking. / Choi, Jay Pil; Stefanadis, Christodoulos.
In: International Journal of Industrial Organization, Vol. 43, 01.11.2015, p. 48-55.Research output: Contribution to journal › Article
TY - JOUR
T1 - Monitoring, cross subsidies, and universal banking
AU - Choi, Jay Pil
AU - Stefanadis, Christodoulos
PY - 2015/11/1
Y1 - 2015/11/1
N2 - We formalize the idea that a financial conglomerate may utilize commercial banking activities to cross-subsidize investment banking through bundled offers. The investment banking sector entails supra-normal profits due to incentive problems with security underwriting. Universal banks may aim to capture (some of) those profits by providing discounts on commercial loans. This practice has an adverse effect on commercial banks' monitoring incentives, encouraging the pursuit of private rents by entrepreneurs. It also leads to lower underwriting fees and a lower probability of successful public offerings. The social welfare effects of universal banking can be either positive or negative.
AB - We formalize the idea that a financial conglomerate may utilize commercial banking activities to cross-subsidize investment banking through bundled offers. The investment banking sector entails supra-normal profits due to incentive problems with security underwriting. Universal banks may aim to capture (some of) those profits by providing discounts on commercial loans. This practice has an adverse effect on commercial banks' monitoring incentives, encouraging the pursuit of private rents by entrepreneurs. It also leads to lower underwriting fees and a lower probability of successful public offerings. The social welfare effects of universal banking can be either positive or negative.
UR - http://www.scopus.com/inward/record.url?scp=84943380506&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84943380506&partnerID=8YFLogxK
U2 - 10.1016/j.ijindorg.2015.09.001
DO - 10.1016/j.ijindorg.2015.09.001
M3 - Article
AN - SCOPUS:84943380506
VL - 43
SP - 48
EP - 55
JO - International Journal of Industrial Organization
JF - International Journal of Industrial Organization
SN - 0167-7187
ER -