The networking function of investment banks: Evidence from private investments in public equity

We examine investment banks' networking function in capital markets, using a sample of Private Investments in Public Equity (PIPEs). We argue that investment banks develop relationships with investors through repeat dealings, and that investment banks' networks of relationship investors form the basis of their networking function. We find that investment banks, especially those with larger investor networks, help issuers attract investors. Correspondingly, an issuer that desires more investors is more likely to hire an investment bank than place the shares directly. We also find that issuers pay higher fees to hire investment banks with larger investor networks. Our empirical findings suggest that the networking function of investment banks is important in securities offerings.