Underwriter Networks in Structured Finance

This paper examines the effects of underwriter networks in the market of securitized products. The complexity and opacity of securitized products increase the value of information gathered and disseminated to the market by central underwriters. However, securitized deals have long performance periods, which can enable central underwriters to exploit their network position and place large volumes of high risk issues. We empirically test these competing effects of network centrality on ex post deal performance using a comprehensive sample of commercial mortgage-backed securities (CMBS) placed in 2000 through 2015. We find that the CMBS underwriter network has become smaller and more central following the financial crisis. We do not find that underwriter network centrality predicts better deal performance, after accounting for fundamentals and deal characteristics. Our results are robust to alternative sample periods, measures of network centrality and serious delinquency, controls for deal characteristics, and fixed effects. Our evidence contrasts with existing research which documents positive effects of underwriter network centrality for equity placements. Our findings also suggest that network centrality does not predict greater risk of structured finance deals