Innovation, Differentiation, and the Choice of an Underwriter: Evidence from Equity-Linked Securities

Investment banks imitate other bank’s innovative corporatesecurities and compete with the innovator to underwrite newissues. This article uses data of all the corporate offeringsof equity-linked and derivative securities in the SecuritiesData Company (SDC) to estimate the issuer’s demand ofunderwriting services provided by investment banks across differentvarieties of securities. It finds that the demand for the innovator’svariety is larger than the imitators’. This demand advantagedecreases with time and faster for securities that appear laterin a sequence of innovations. Imitation becomes less attractivelater in the sequence as information from earlier deals spills-overto all banks.