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Traders vs. Relationship Managers: Reputational Conflicts in Full-Service Investment Banks

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  • Zhaohui Chen
  • Alan D. Morrison
  • William J. Wilhelm

Abstract

We present a model that explains why investment bankers struggle to manage conflicts of interest. Banks can build a type reputation for technical competence by performing complex deals that may not serve their clients' interest; on the other hand, banks can sustain a behavioral reputation by refraining from doing so. A behavioral reputation is a luxury reserved for banks that have proven their abilities. The model sheds light on conflicts between the trading and advisory divisions of investment banks, as well as the consequences of technological change for time variation in the relative strength of behavioral- and type-reputation concerns.

Suggested Citation

  • Zhaohui Chen & Alan D. Morrison & William J. Wilhelm, 2015. "Traders vs. Relationship Managers: Reputational Conflicts in Full-Service Investment Banks," The Review of Financial Studies, Society for Financial Studies, vol. 28(4), pages 1153-1198.
    • Handle: RePEc:oup:rfinst:v:28:y:2015:i:4:p:1153-1198.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhu086
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    Cited by:

    1. Fredj Jawadi & Abdoulkarim Idi Cheffou & Nabila Jawadi & Wael Louhichi, 2016. "On the Reputation of Islamic Banks: a Panel Data Qualitative Econometrics Analysis," Open Economies Review, Springer, vol. 27(5), pages 987-998, November.
    2. Alan D Morrison & Carola Schenone & Aaron Thegeya & William J WilhelmJr., 2018. "Investment-Banking Relationships: 1933–2007," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 7(2), pages 194-244.

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