Federal Reserve Bank of San Francisco

We examine the impact of foreign underwriting activity using issue-level data in the Japanese “Samurai ” and euro-yen markets over the period from 1992 to 2001. We find that the firms in these markets who chose Japanese underwriters over their foreign counterparts tended to be Japanese, riskier, smaller, seasoned, and collateralized. We then examine the determinants of underwriting fees. While our data confirms that Japanese underwriters charged higher fees and spreads on average, we find that after conditioning for issuer characteristics, the residual charges of Japanese underwriters were actually lower than those of their foreign competitors. However, using the endogenous switching regression technique to account for the endogeneity of issuer choice, we find that firms tended to choose the proper nationality of underwriter, in the sense that switching from a Japanese underwriter to a foreign one, or vice versa, would be predicted on average to result in an increase in underwriting fees. Finally, we examine the impact of the 1996 liberalization of foreign access to the “Samurai ” bond market. We conduct a matching exercise, using yen-denominated issues in the euro-yen market as a control sample. We find that deregulation led to a statistically and economically significant decrease in underwriting fees in the Samurai bond market