ABSTRACT
    the  Lehman  collapse  affected  industrial  firms 
  that  received  underwriting,  advisory,  analyst, 
  and  market-making  services  from  Lehman. 
  Equity  underwriting  clients  experienced  an 
  abnormal return of around –5%, on average, in 
  the  7  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.
   I. Background 
   A. Firm–Investment Bank Relationships
   The extant theoretical and empirical literature has examined ways 
   in which a long-term equity underwriting relationship between an 
   investment bank and a 238 The Journal of FinanceR client firm can 
   create value for both parties. The first such channel is economies of 
   scale.
   B. Empirical Implications
   Equity underwriting relationships (especially relationships with high 
   reputation underwriters) appear to be potentially valuable to client 
   firms because of equity clients (1) being able to share the benefit of 
   an underwriter’s investment in information generation via reduced 
   fees for subsequent equity offerings and (2) having the ability to 
   benefit  from  underwriter  monitoring  and  the  underwriter’s 
   investment  in  a  network  of  institutional  investors,  who  provide 
   information and also subscribe to the underwriter’s offerings.
   II. Data and Methodology
   A. Equity Underwriting 
   We  use  the  Securities  Data  Corporation  (SDC)  Global  New 
   Issues  database  to  identify  firms  that  employed  Lehman 
   Brothers as the lead or co-lead underwriter on a public offering 
   of  common  stock  in  the  U.S.  market  during  the  10  years 
   preceding  Lehman’s  bankruptcy  (September  14,  1998,  to 
   September 14, 2008).
   B.  Debt  Underwriting,  M&A  Advising,  Market  Making,  and 
   Analyst Coverage 
   In addition to equity underwriting, we also examine the effect 
   of Lehman’s collapse on firms that received other services from 
   Lehman,  including  debt  underwriting,  M&A  advising,  market 
   making, and analyst coverage.
    C. Measures of Investment Bank–Client Relationship 
    Strength and Client Characteristics 
    This subsection describes measures of the strength 
    of a client’s relationship to Lehman and other client 
    characteristics   that   we  use  as  independent 
    variables    in   our    cross-sectional    regressions 
    pertaining to equity underwriting clients
    D. Estimating Abnormal Returns
    Ri,t = αi + βi RM,t + siSMBt + hiHMLt + uiUMDt + 
    εi,t,
    III. Results
    A.  The  Collapse  of  Lehman  Brothers  Table  I 
    documents the significant  events  surrounding  the 
    bankruptcy of Lehman Brothers and Lehman’s stock 
    price performance. On Sunday evening, September 
    14, 2008, Lehman announced that it would file for 
    protection  in  U.S.  bankruptcy  court.  The  following 
    day (Day 0), Lehman’s shareholders experienced a 
    raw  return  of  –94%,  which  came  on  the  heels  of 
    significant  losses  during  the  week  before  the 
    bankruptcy   announcement  (September  8  to 
    September 12; Days –5 to –1).