The politics of government financial management: Evidence from state bonds |
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| Institution: | 1. Duke’s Fuqua School of Business, Duke University, 100 Fuqua Drive, Durham, NC 27708, USA;2. Department of Research, Federal Reserve Bank of Atlanta, 1000 Peachtree St. NE, Atlanta, GA 30309, USA;1. Department of Monetary Finance, The College of Finance and Statistics, Hunan University, P.R.O.C.;2. Department of Finance and Banking, Shih Chien University, R.O.C.;3. Department of Finance, Chung Yuan Christian University, R.O.C;4. Department of Business Administration, National Taipei University, R.O.C;5. Dagong Credit Management School, Tianjin University of Finance and Economics, China;1. Department of Economics, Mihaylo College of Business and Economics, California State University Fullerton, Fullerton, CA 92834, United States;2. Department of Economics, University of Western Ontario, London, ON N6A 5C2, Canada |
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| Abstract: | In the $3.7 trillion U.S. state-and-local-government-bond market, greater issuance costs (lower issue-prices and greater underwriting fees) benefit financial institutions, while costing taxpayers. Campaign contributions by politically supportive underwriters can be associated with lower issuance costs. Alternatively, contributions can influence a politician to accept greater costs. This paper's evidence suggests that contributions influence politicians: In the absence of an underwriter auction, underpricing increases with the chosen underwriter's contributions relative to others. Moreover, the difference in the fees charged by contributing underwriters and those charged by non-contributing underwriters is 2.9%. In the presence of an underwriter auction, these results are statistically insignificant. |
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