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Examining Financial Behavior in Special Purpose Entities
Robert J. Eger III,
Florida State University
ABSTRACT: This paper examines the financial behavior of public agencies taking into consideration the corporate-like structure of governmental special purpose entities. We expect public transportation special purpose entities to display evidence of the pecking order approach to financing decisions, to engage in moral hazard behavior perpetuated by bailout anticipation, to respond to market signals, and to exhibit restraint in their issuance of debt through market discipline. The empirical results suggest that although enabling governments often subsidize transportation special purpose entities, financially they appear to be more corporate-like than previously thought. Empirical support is found for the pecking order theory and the bail out hypothesis. However, we found no support for the market signal hypothesis. Overall, the empirical results provide mixed evidence of market-based financial discipline in governmental special purpose entities financial behavior.
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