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Review of Finance Advance Access originally published online on November 27, 2008
Review of Finance 2009 13(2):341-367; doi:10.1093/rof/rfn027
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© The Author 2008.
This is an Open Access article distributed under the terms of the Creative Commons Attribution Non-Commercial License (http://creativecommons.org/licenses/by-nc/2.0/uk/) which permits unrestricted non-commercial use, distribution, and reproduction in any medium, provided the original work is properly cited.

Cross-Selling Lending and Underwriting: Scope Economies and Incentives*

Christian Laux1 and Uwe Walz2

1 Goethe-University Frankfurt am Main, Center for Financial Studies (CFS) and European Corporate Governance Institute (ECGI)
2 Goethe-University Frankfurt am Main, and Center for Financial Studies (CFS)

We highlight the implications of combining underwriting services and lending for the choice of underwriters and for competition in the underwriting business. We show that cross-selling can increase underwriters' incentives, and we explain three phenomena: first, that cross-selling is important for universal banks to enter the investment banking business; second, that cross-selling is particularly attractive for highly leveraged borrowers; third, that less-than-market rates are no prerequisite for cross-selling to benefit a bank's clients. In our model, cross-selling reduces rents in the underwriting business.

JEL Classification: G21, G24, D49

* We are grateful to Martin Hellwig, Marco Pagano (the editor) and especially to an anonymous referee for very helpful comments. We also thank participants of seminars at Max Planck Institute (Bonn), Tilburg University, University of Bonn, University of Konstanz, University of St. Gallen, Bendorf meeting of the Verein für Socialpolitik and the annual meetings of the European Finance Association, the European Financial Management Association, and the German Finance Association.


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