Banking Relationships and Access to Equity Capital Markets: Evidence from Japan’s Main Bank System

We study the role of banking relationships in IPO underwriting using a sample of 484 Japanese IPOs. Among other issues, we consider whether bank relationships lead to increased access to public equity markets, especially for smaller, lesser-known firms. When a firm in Japan goes public, it can engage an investment bank that is related through a common main bank, or can select an alternative investment bank. The main bank relationship can be an efficient way for the investment bank to acquire information generated by the main bank, but may give rise to conflicts of interest. We use data from two different investment banking regimes in Japan (a hybrid auction-method regime and a book-building regime) and find that main bank relationships give small issuers increased access to equity capital markets, but that issuers of large IPOs switch to non-related investment banks that are capable of managing large offerings. While we find evidence that investment banks seek to exploit bargaining power with related issuers, we also find that issuers respond to expected high issue cost by switching to non-related investment banks. The net result is that total issue costs through related and non-related investment banks are similar. With respect to aftermarket performance and use of offer proceeds, we find no evidence of conflict of interest or self-dealing for either the main bank or the investment bank.Main Bank; Banking Relationships; Capital Market Access; IPOs; Underwriting; Japanese Economy

The Early Decision Option in College Admission and Its Impact on Student Diversity

Colleges and universities that adopt early decision (ED) as an admission practice can generate additional resources by attracting wealthier students who make binding commitments to attend and forgo shopping for competing aid offers. An unanswered question is whether the resources generated from price discrimination are used by schools during the regular admission process to attract more diverse students. Using a sample of private national universities and liberal arts colleges, we model the choice to adopt an ED program and its impact on students’ racial and geographic diversity. We find that schools facing more competition for students are more likely to adopt an ED program. The overall heterogeneity of students is lower for schools that adopt ED, and heterogeneity decreases as schools enroll larger percentages of students through ED. Higher ED enrollment percentages appear to strongly and negatively affect Asian American and Hispanic students and positively affect white students

Trade Credit and Informational Asymmetry.

Commonly used trade credit terms implicitly define a high interest rate that operates as an efficient screening device where information about buyer default risk is asymmetrically held. By offering trade credit, a seller can identify prospective defaults more quickl y than if financial institutions were the sole providers of short-ter m financing. The information is valuable in cases where a seller has made nonsalvageable investments in buyers since it enables the seller to take actions to protect such investments. Copyright 1987 by American Finance Association.