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The advanced producer services complex as an obligatory passage point: evidence from rent extraction by investment banks

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journal contribution
posted on 23.02.2021, 10:01 by Vladimír Pažitka, David Bassens, Michiel Van-MeeterenMichiel Van-Meeteren, Dariusz Wójcik
Advanced producer services have long been theorized as pivotal in organizing the global economy. Finance takes centre stage in the advanced producer services complex as orchestrator of global flows, particularly in underwriting investment and evaluating corporate performance. The ascent of financialized globalization raises the suspicion that key advanced producer services act as rent-extracting ‘obligatory passage points’ in the orchestration of global financial flows. Competition within the financial sector is contentious given the sustained profits by globally connected banks operating in concentrated markets. Investment banks and other advanced producer services play key roles in underwriting of securities, raising questions whether underwriting is a competitive process. This paper interrogates the microeconomic foundations for the role of investment banks in investment chains to shed light on their rent extraction practices. Using a sample of 2940 initial public offerings for the USA, Canada, and Europe in the 1998–2017 period, we examine the structure of fees charged by investment banks for underwriting of equity securities. Our results are consistent with the proposition that investment banks with more market power and stronger network ties with institutional investors utilize their dominant position in the marketplace to extract rents from both issuers and institutional investors. Taken together, at times of spatial and sectoral consolidation, these results show compelling evidence for the status of investment banks and by extension the wider advanced producer services complex as obligatory passage points under financialized globalization.

Funding

European Research Council (ERC) under the European Union’s Horizon 2020 research and innovation programme (grant agreement No. 681337)

Brussels Capital Region through the Innoviris Anticipate programme (grant agreement No. BRGEOZ289)

Research Foundation – Flanders (FWO) (grant agreement No., G019116N)

Australian Research Council's Discovery Projects funding scheme (project DP160103855)

Innovating Next Generation Services through Collaborative Design

Economic and Social Research Council

Find out more...

History

School

  • Social Sciences and Humanities

Department

  • Geography and Environment

Published in

Competition & Change

Volume

26

Issue

1

Pages

53 - 74

Publisher

SAGE Publications

Version

VoR (Version of Record)

Rights holder

© The Authors

Publisher statement

This is an Open Access Article. It is published by SAGE under the Creative Commons Attribution 4.0 International Licence (CC BY 4.0). Full details of this licence are available at: https://creativecommons.org/licenses/by/4.0/

Publication date

2021-02-20

Copyright date

2021

ISSN

1024-5294

eISSN

1477-2221

Language

en

Depositor

Dr Michiel Van Meeteren. Deposit date: 22 February 2021