City University of New York, CUNY Baruch College – Zicklin School of Business – Department of Economics and Finance
Federal Reserve Banks – Federal Reserve Bank of Philadelphia
New York University – Leonard N. Stern School of Business
NYU Working Paper No. FIN-00-007
This paper looks at the role of commercial banks and investment banks as financial advisors. Unlike some areas of investment banking, commercial banks have always been allowed to compete directly with traditional investment banks in this area. In their role as lenders and advisors, banks can be viewed as serving a certification function. However, banks acting as both lenders and advisors face a potential conflict of interest that may mitigate or offset any certification effect. Overall, it is found that, in their merger and acquisition advisory function,the certification effect of commercial banks dominates the conflict of interest effect and that the certification effect is particularly strong when the target s own bank advises merger targets.