"We wanted to know who made a good underwriting partner in investment banking," says Tim Rowley, a professor at U of T's Rotman School of Management and co-author of Inertia and Evaluation Mechanisms In Interorganizational Partner Selection: Syndicate Formations Among U.S. Investment Banks. "Is it the competitive one (the one that brings you the most profits) or are other factors taken into account?"
Rowley and co-author, Professor Stan X. Li of the University of Alberta's School of Business, analyzed archival data of IPOs (initial public offerings) from 1952 to 1990 in the United States to see what criteria I-banks used to select their underwriting partners. They found that partnerships were based on past cooperative relationships between organizations not just on an investment bank's expertise and skills. "Your reputation in the industry and whether you've been a cooperative partner in the past are the primary factors behind successful partnerships," says Rowley.
"Our results were surprising because economists will tell you being an attractive partner is all about talent and high rates of return on investments but sociologists say it's more about being around people you like," says Rowley. "Even in the cut-throat world of investment banking, trust, relationships and social cohesion play a major part in business dealings."
This study, published in the January issue of the Academy of Management Journal, was funded by the Social Sciences and Humanities Research Council of Canada.
CONTACT: Professor Tim Rowley, Rotman School of Management, 416-978-6859, rowley@rotman.utoronto.ca or Sue Toye, U of T public affairs, 416-978-4289, sue.toye@utoronto.ca
Journal
Academy of Management Journal