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- Title
Another Look at the Effect of Method of Sale on the Interest Cost in the Municipal Bond Market—A Certification Model.
- Authors
Peng, Jun; Brucato Jr., Peter F.
- Abstract
Whether competitive bidding or negotiated sale leads to lower borrowing cost for municipal debt issuers has been studied extensively in municipal finance research. There is a potential self-selection bias when estimating the relative cost effectiveness of these two methods of sale. This article argues that sale method can be viewed as a certification mechanism as issuers self-select themselves into either competitive or negotiated groups based on their perception of the underlying degree of information asymmetry. By correcting for this self-selection bias, we find that for issues with no or little information asymmetry, neither sale method has a significant cost advantage over the other.
- Subjects
MUNICIPAL bonds; INTEREST costs; MUNICIPAL finance; GOVERNMENT securities; BOND market; INVESTMENT guaranty insurance
- Publication
Public Budgeting & Finance, 2003, Vol 23, Issue 1, p73
- ISSN
0275-1100
- Publication type
Article
- DOI
10.1111/1540-5850.2301004