Banks that lead underwriter syndications often face pressure to show their clients in a favorable light, even if it may obscure information in the market. But do the smaller banks in these syndications also feel that pressure?

Connie Mao and her co-author found that lead banks expected smaller banks to reciprocate their invitation into the syndicate by delaying reporting downgrades in stock recommendations issued to their clients. Smaller banks who refused to do so received fewer invitations to syndicates in the future.

Mao advises regulators to keep an eye on how subtle reciprocal behavior can lead to larger conflicts of interest within syndications.