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Hi, need to submit a 2000 words paper on the topic Investment Bank Reputation. The general public depends on investment banks for their own understanding of the issue price and forming their opinion a
Hi, need to submit a 2000 words paper on the topic Investment Bank Reputation. The general public depends on investment banks for their own understanding of the issue price and forming their opinion about it. If the investment banks put less valuation then the issuing entity would lose out on receiving fair value from the market for its issues. On the other hand dishonest or overvaluation might make it possible for the firm to gather more money initially but after a certain point of time when the actual value creation ability of the business becomes evident, the investing public and other investing entities loose faith in the investment bankers as well as the whole market system. In fact, this kind of wrong valuation could threat the market's existence as different participating entities lose faith. One of the crucial points in this context is that the incentives the investment banks receive are positively correlated to the quantum of proceeds the issuer gets for his issue, equity or debt/bond. Therefore the investment banks can have their own incentive perspective in mind while underwriting debts or securities as a higher valuation would ensure that they earn more while a lower valuation would attract lesser investors as a result of which the issuer would not be willing to invest more. Moreover reputed investment firms like J.P. Morgan Chase or Citigroup have the leeway of overpricing an issue i.e. giving a dishonest analysis of the quality of the issue as their reputation is not challenged by the general public and investing community as such. So if they had overvalued the issues of Enron or Worldcom, they would not have been caught at first. Only after a long span of time when the actual business condition of the companies would have come forth, the investing community would have understood. Therefore, it is not unfeasible to accuse these investment firms in wrongdoing and more so in the era of subprime crisis which has also seen a lack of corporate governance in big investment firms and their greed. . .
