INTRODUCTION OF INVESTMENT BANKING Investment bankers function as intermediaries in financial transactions. They are experienced in carrying out projects that, for most companies, take place very rarely, but are critically important. What is Investment Banking? Investment banking is a multi-faceted practice area that involves structuring financial transactions for private and public companies into developed and emerging markets. Investment bankers identify capital opportunities, negotiate and structure 1
deals, and execute private and public financial transactions. The essential function of an investment bank is to act as an intermediary between potential investors and those who seek capital. Investors include individuals, mutual funds, municipalities, public corporations, and private institutions. Generally, capital is raised through the issuance of equity (stock), debt (bonds), or through a merger and acquisition (buying and selling part of a company). Investment bankers perform duties ranging from the preparation of disclosure documents and marketing materials for public offerings, to analyzing potential mergers and acquisitions for boards and shareholders. Investment banks offer many different practice areas that typically fall under broader classifications such as investment banking, investment management, merchant banking, finance and operations, information technology, global research, fixed income, risk management, and equities. Due to high salaries, large potential bonuses and the drama associated with the financial markets, investment banking has become increasingly popular among JDs. Generally, those with JD degrees choose positions in corporate finance, M & A, structured finance, or a more technical discipline. Investment banking relationship : Of course, the paper indicated that the investment banking activity affects the objectivity of research analysts by impacting the quality of their recommendations. I think that we should list different circumstances when such things occur. The most usual circumstance is when the research analyst fears to issue a negative recommendation so as not to lose a potential investment banking contract with a firm. Another circumstance is when the investment bank department floats a company and strives to keep the closing price above the initial listing price. Any negative recommendation stemming from the research department is generally not welcome by both the issuer and the investment banker. Another circumstance is when there is a pressure from the commercial banking activity regarding research recommendations. In some countries, commercial banks are heavily dominating the investment banking activity. Regulatory bodies are often unwilling to impose clear “firewall” guidelines between the two activities due to the heavy lobbying power of the banks. Sometimes, the listed companies and their 2
major shareholders are clients of the commercial bank which is reluctant to see any negative recommendation on the listed companies.
You've reached the end of your free preview.
Want to read all 82 pages?
- Fall '16
- Corporate Finance, investment bank, Escalade