Kenneth N Daniels
Virginia Commonwealth University
Jayaraman Vijayakumar
Virginia Commonwealth University
Abstract: Significantly more and more issuers of municipal bonds use the services of financial advisors during the bond issuance process. We investigate the economic benefits to issuers and market participants arising from the role of financial advisors in the issuance of municipal bonds. Using a large sample of 9493 tax-exempt municipal bonds issued during the period 1990-1999, we show that financial advisors have significant impact on reoffering yields, borrowing costs and underwriter gross spreads. Our results are more pronounced for revenue bonds, particularly for revenue bonds that are of investment grade, and for negotiated revenue issues, suggesting that financial advisors play important roles for larger more complex issues and for negotiated issues. Our results are consistent with the interpretation that financial advisors play important certification and monitoring roles and help in reducing information asymmetries between issuers and market participants by enabling and ensuring more disclosure during the issuance process.
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