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Discussion of “ The perverse effect of Investment Bank Ratings:Evidenc from M&A League Tables ” – Derrien & Dessaint Lammertjan Dam, University of Groningen. Summary. Paper shows that patterns in M&A advisory mandates suggest a phenomenon labeled “ Table League Management”

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  1. Discussion of “The perverse effect of Investment Bank Ratings:Evidencfrom M&A League Tables” – Derrien & DessaintLammertjan Dam, University of Groningen

  2. Summary • Paper shows thatpatterns in M&A advisorymandatessuggest a phenomenonlabeled “Table League Management” • Paper investigateswhether Banks indeed manage their ranking. Reason is thatitincreases market share bybeingabletoattract more future business. • Authors indeed findevidenceforTable League management

  3. General Comments • Interesting topic, new to me. • Well-writtenand well-motivated paper • Quitepolishedversionfor a conference paper, easy toread. • Paper exhibits effort in terms of different analyses to make the point.

  4. SpecificComments • Towhatextent does the causality run as the authorssuggest? • Is it: • 1. charge low fee => 2. Increase in ranking => 3. higher market share byattracting business • Or • 1. charge low fee => 2 a. attract more business => 2 b. andincrease in ranking

  5. Specificcomments • Put differently, canallinstumentsthat serve “Table League Management” notdirectlybeclassified as instrumentsthat have to do withquality, thusincreasing market share? • Leadingto a higher ranking at the same time? Ad 1. Even though the ranking is “lagged” Table 2, panel A does notinclude bank fixedeffects. • Henceit is likelytobelargely a crossectionalresult. • Tablesays: Banks with a high ranking on average are associatedwithlargeraverage market shares. • But are is thereanunderlying factor drivingboth?

  6. Specificcomments • Table 2. Panel B is animprovement, but I amnotsurewhether the Deviation in rankingsfully take care of this. (Again, sthelse drives market shares and ranking.) • My suggestion:Ifyou want to show thatanincrease in ranking for a specific bank over time has increase market share, youshouldincludefixedeffects/take first differences of dependentand independent/show more lags. In short: I amnotfullyconvincedthatTable 2 tackles endogeneity/ reverse causality. Convince me thatit is more thanjustshowingthatbankswith a high ranking are contemporaneousltassociatedwithlarger market shares. Maybe I misunderstood: In that case be more clearabout the lags.

  7. Specificcomments What is the mainmessage of Table 3. Banks with a high rank are likelytobeselected? Is thisnotsayingthatrankings move slowly? I likeTables 4- 7, to me this is more clearevidence of Table league management. Table 8 potentially suffers from the aforementionedproblem. Indeed whenyouinclude bank fixedeffects, youlose a lot significance. But even withfixedeffects => “quality” of bank goes down => so do rankingsandfees… What is perverse here?

  8. Minor Comments • Table 2. Ifyou have quarterdummies, howcanyoualso have yeardummies? • P13. figure 1 shouldbefigure 4. • Table 10. Contrarywhat I saidbefore, are younotinterested in the crossectionhere? => Show without fixedeffectstoo…

  9. Conclusion • Havingread the paper, I believeyou do have someevidencefortable league management • However, you want toidentify the incentives fortable league management bylinkingitto market shares. There I amnotfullyconvinced (yet). • Suggestion: show thatlagged change in rank affects change in market share, or sth in the same spirit.

  10. Conclusion • I thinkthatifyou want to show the perverse effect of table leagues, do more analysis in line withtable 10. • Do youneed market share story? Whycant the ranking itselfbe the main incentive? And show ranking is meaningless… • To me the key is thatactivitiesthat are ratheruseless, otherthanincreasing the ranking and/or low in costshouldbe at the center of the analysis. • That is why I amnotconvincedby the feesand/or market shares. On the other hand, you show in table 10 that ranking has no effect on the quality of the deals. This I like.

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