The Value of Investment Banking Relationships: Evidence from the Collapse of Lehman Brothers

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Abstract
We examine the long-standing question of whether firms derive value from investment bank relationships by studying how the Lehman collapse affected industrial firms that received underwriting, advisory, analyst, and market-making services from Lehman. Equity underwriting clients experienced an abnormal return of around -5%, on average, in the seven days surrounding Lehman’s bankruptcy, amounting to $23 billion in aggregate, risk-adjusted losses. Losses were especially severe for companies that had stronger and broader security underwriting relationships with Lehman or were smaller, younger, and more financially constrained. Other client groups were not adversely affected.