The Role and Impact of Financial Advisors in the Market for Municipal Bonds |
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Authors: | Jayaraman Vijayakumar Kenneth N Daniels |
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Institution: | (1) School of Business, Virginia Commonwealth University, Richmond, VA 23284-4000, USA |
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Abstract: | Significantly more and more issuers of municipal bonds use the services of financial advisors during the bond issuance process.
We investigate the benefits to issuers and market participants arising from the role of financial advisors in the issuance
of municipal bonds. Using a large sample of 9,493 tax-exempt municipal bonds, we show that financial advisors have significant
impact on borrowing costs, reoffering yields and underwriter gross spreads. Our results are more pronounced for revenue bonds,
particularly for negotiated revenue issues. In addition, our results show significant advantages to using a financial advisor
for refunding issues supporting the view that financial advisors play important roles for more complex issues. Our results
are consistent with the interpretation that financial advisors provide important and useful services resulting in monitoring
and information asymmetry reduction benefits accruing to issuers and market participants.
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Keywords: | Municipal bonds Monitoring Financial advisors |
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