Our speaker will be Giorgio Ottonello (Nova School of Business and Economics).

He will give a talk on "Bank connections and firms' access to the bond market".

Abstract: 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.

The talk will take place on June 8, 2022 hybrid in room D3.0.233. at 12.00 p.m. - 1.00 p.m.

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