Commercial Banks in Investment Banking Underwriting: Certification Effect or Conflicts of Interest

Abstract

We focused on the case that China Development Industrial Bank (CDIB) bid for Grand Cathay Securities Corporation (GCSC) by the tender offer in 2001.Because of variance effect, arbitrage chance, and uncertainty problems of CDIB, tender offer announcement had a positive effect on GCSC`s stock returns but a negative one on CDIB`s stock returns. Owing to signaling effect, expectation of control right concentration, and increasing difficulty of taking control for CDIB, management resistance announcement had a positive effect on GCSC`s stock returns but a negative one on CDIB`s stock returns. Because of arbitrage chance, expectations of management resistance, and uncertainty problems of CDIB, tender offer approval by SFC had a positive effect on GCSC`s stock returns but a negative one on CDIB`s stock returns. Owing to disappointment to the result, tender offer failure had a negative effect on GCSC`s stock returns and a negative one on CDIB`s stock returns.