Information Efficiency or Hold-up with Universal Banks? Some Evidence from Lending after Equity Underwriting

We find that spreads on loans originated by lenders affiliated to the IPO underwriters (informed lenders) are 12 basis points (bps) higher than loans originated by unaffiliated (uninformed) lenders. The price of these affiliated post-IPO loans is 59 bps higher than that of those unaffiliated loans when they start trading on the secondary market, suggesting too high a spread for affiliated loans. Loans around the SEO window also have higher spreads when they are originated by SEO underwriters. Our results for both IPOs and SEOs support the hold-up hypothesis of informed lenders exploiting private information to earn economic rents.