NORMAN, Okla., Oct. 3, 2011 (GLOBE NEWSWIRE) -- The collapse of Lehman Brothers is viewed as one of the key events associated with the 2008 financial crisis. The announcement of the Lehman bankruptcy on Sept. 15, 2008, triggered one of the worst single-day losses in the U.S. stock market and pushed the entire global financial system to the edge of collapse.
In a new study that is forthcoming in the Journal of Finance, Chitru Fernando and Bill Megginson of the Michael F. Price College of Business at the University of Oklahoma and Anthony May of Wichita State University use the Lehman collapse to examine the long-standing question of whether firms derive value from investment bank relationships. They study how the Lehman collapse affected industrial firms that received underwriting, advisory, analyst and market-making services from Lehman. After adjusting for the overall market decline during that period, Lehman's equity underwriting clients experienced a further abnormal negative return of around five percent, on average, in the seven days surrounding Lehman's bankruptcy, amounting to $23 billion in aggregate risk-adjusted losses. Losses were especially severe for companies that had stronger and broader security underwriting relationships with Lehman or were smaller, younger and more financially constrained. Other client groups were not adversely affected.
The authors also presented their findings at several leading conferences and universities around the world, including the annual American Finance Association meetings; Financial Intermediation Research Society conference; and the U.S., European and Asian meetings of the Financial Management Association. Fernando notes, "Our results shed light on an aspect of the Lehman collapse – its effect on Lehman's clients – that has been largely ignored in the ongoing debate." Megginson adds, "These results show that Lehman's collapse did, in fact, impose material losses on its customers, but for the most part these losses were confined to those companies that employed Lehman for equity underwriting, which remains an important source of value to clients in an investment bank/firm relationship."
Ranked in the top 5 percent of all U.S. undergraduate business schools based on recent ranking data, the Price College of Business is one of the nation's premier business colleges. This year, U.S. News & World Report ranks the college's undergraduate program 46th in the nation and the International Business Program 16th in the nation. Entrepreneur magazine in association with The Princeton Review currently ranks the Entrepreneurship Program 10th in the nation.