Private Placements and the Cost of Borrowing in the Municipal Debt Market

2019 ◽  
Vol 39 (3) ◽  
pp. 44-74
Author(s):  
Tima T. Moldogaziev ◽  
Robert A. Greer ◽  
Jekyung Lee
Keyword(s):  
Private Placements ◽  
Debt Market ◽  
Municipal Debt ◽  
The Cost

Does opening high-speed railways affect the cost of debt financing? A quasi-natural experiment

2020 ◽  
Vol 10 (4) ◽  
pp. 473-496
Author(s):  
Hongling Guo ◽  
Keping Wu
Keyword(s):  
High Speed ◽  
Geographical Location ◽  
Debt Financing ◽  
Cost Of Debt ◽  
High Speed Railway ◽  
Content Type ◽  
Financing Cost ◽  
Debt Market ◽  
The Cost ◽  
The Impact

PurposeThis study aims to investigate how opening high-speed railways affects the cost of debt financing based on China's background.Design/methodology/approachUsing panel data on Chinese listed firms from 2008 to 2017, this study constructs a quasi-natural experiment and adopts a difference-in-difference model with multiple time periods to empirically examine the relation between the high-speed railway openings and debt financing cost.FindingsOur results show that opening high-speed railways reduces the cost of debt financing, and this negative correlation is more significant in non-state firms, firms with weaker internal control, and firms that hire non-Big Four auditors. Besides, we explore the impact mechanisms and find that opening high-speed railways improves analyst attention, institutional investor participation, and information disclosure quality, which in turn lowers the cost of debt financing.Research limitations/implicationsThe results imply that the opening of high-speed railways helps to alleviate the information asymmetry and adverse selection between firms and creditors and ultimately reduces the cost of corporate debt financing.Practical implicationsThis paper can inform firms and stakeholders about the impact of opening high-speed railways on debt financing cost: it improves the information environment, reduces the geographical location restrictions of debt financing, ensures the reasonable pricing of corporate debt, and thus promotes the healthy and sound development of the debt market.Originality/valueThis paper provides theoretical support and empirical evidence for the impact of infrastructure construction on the information environment of the debt market in China, which enriches the research on the “high-speed railway economy.” In addition, as an exogenous event, the opening of high-speed railways instantly shortens the time distance between firms and external stakeholders, which gives us a natural environment to conduct empirical research, thus providing a new perspective for financial research on firms' geographical location.

scholarly journals Do audited firms have a lower cost of debt?

2022 ◽  
Author(s):  
Asif M. Huq ◽  
Fredrik Hartwig ◽  
Niklas Rudholm
Keyword(s):  
Financial Statements ◽  
Cost Of Debt ◽  
Sources Of Information ◽  
Private Debt ◽  
High Exposure ◽  
History Of ◽  
Debt Market ◽  
Instrumental Variable Method ◽  
Alternative Sources ◽  
The Cost

AbstractThe purpose of this study is to investigate if audited financial statements add value for firms in the private debt market. Using an instrumental variable method, we find that firms with audited financial statements, on average, save 0.47 percentage points on the cost of debt compared to firms with unaudited financial statements. We also find that using the big, well-known auditing firms does not yield any additional cost of debt benefits. Lastly, we investigate if there are industries where alternative sources of information make auditing less valuable in reducing the cost of debt. Here, we find that auditing is less important in lowering cost in one industry, agriculture, where one lender has a 74% market share and a 100-year history of lending to firms within that industry. As such, it seems that lenders having high exposure to a certain industry might act as an alternative to auditing in reducing the information asymmetry between the firm and the lender.

Investing Productively: The Securities Market

New India ◽  
2020 ◽  
pp. 130-144
Author(s):  
Arvind Panagariya
Keyword(s):  
Financial Markets ◽  
Securities Market ◽  
Securities Markets ◽  
Publicly Traded ◽  
Productive Activities ◽  
Private Placements ◽  
Insurance Funds ◽  
Debt Market ◽  
The Government

Relative to labor, capital is India’s scarce factor of production. Therefore, it is particularly important that it is allocated to the most productive activities. Well-functioning financial markets are critical to achieving this objective. Accordingly, this chapter focuses on the securities markets in India. In terms of new issues, private placements have dominated securities markets in India, both in equity and in debt. When it comes to public placements, while there is a bit of liquidity in equities, the same is not the case in the debt market. The market in publicly traded corporate bonds is thin, with limited liquidity. This chapter offers a number of ideas to deepen this market. For instance, rules governing investment in these bonds by pension, provident, and insurance funds may be liberalized. The government may also partially de-risk long-term bonds for infrastructure projects through provision of collateral.

Linguistic tone of management discussion and analysis disclosures and the municipal debt market

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Kevin T. Rich ◽  
Brent L. Roberts ◽  
Jean X. Zhang
Keyword(s):  
State Level ◽  
Municipal Bond ◽  
Content Type ◽  
Rating Agencies ◽  
Final Sample ◽  
Debt Market ◽  
Linguistic Tone ◽  
Municipal Debt ◽  
Disclosure Tone ◽  
Market Consequences

PurposeAs the management discussion and analysis (MD&A) section contains discretionary narrative disclosures regarding a government's yearly financial changes and status, the authors investigate several municipal debt market consequences of linguistic tone within these disclosures.Design/methodology/approachThe authors textually analyze municipal MD&As with Linguistic Inquiry and Word Count (LIWC) software and develop narrative tone measures based on existing financial-specific dictionaries. Using a final sample of 446 municipal bond issuances from 2012 to 2016, the authors modify the current bond regression models to examine the association between MD&A disclosure tone and future bond interest costs or rating disagreements.FindingsThis study’s empirical analysis suggests that more negative MD&A tone is associated with higher future debt costs and greater future disagreements among bond rating agencies.Practical implicationsOverall, the evidence implies that municipal bond stakeholders use the information in narrative disclosures when evaluating risk, but that the qualitative nature can introduce differences in interpretation between users. Furthermore, additional training in MD&A writing and further standard guidance in MD&A disclosures could improve the MD&A's informativeness for bond market decision-making and state-level monitoring.Originality/valueThis study is first to incorporate narrative tone measures into bond models in a governmental context.

Optimality in Municipal Debt: A Comment and Respecification

1979 ◽  
Vol 7 (3) ◽  
pp. 352-363 ◽  
Author(s):  
Patrick J. Sullivan
Keyword(s):  
Time Preference ◽  
Cost Minimization ◽  
Optimal Level ◽  
General Purpose ◽  
Debt Financing ◽  
Policy Implications ◽  
Municipal Debt ◽  
The Cost ◽  
Private Rate

The optimal level of debt financing by municipally owned and operated enterprises is examined, with particular emphasis placed on several misconceptions involved in an earlier article by Robert A. Collins. A respecified cost minimization model, taking the cost of risk bearing and the private rate of time preference into account, is proposed. The resulting policy implications for debt financing are very different from those argued by Collins and from those traditionally made for general-purpose municipal financing.

Beating Earnings Benchmarks and the Cost of Debt

2008 ◽  
Vol 83 (2) ◽  
pp. 377-416 ◽  
Author(s):  
John (Xuefeng) Jiang
Keyword(s):  
Default Risk ◽  
Lower Cost ◽  
Cost Of Debt ◽  
Bond Markets ◽  
Yield Spread ◽  
Bond Yield ◽  
Earnings Benchmarks ◽  
Debt Market ◽  
The Cost ◽  
Firm Default

Prior research documents that firms tend to beat three earnings benchmarks—zero earnings, last year's earnings, and analyst's forecasted earnings—and that there are both equity market and compensation-related benefits associated with beating these benchmarks. This study investigates whether and under what conditions beating these three earnings benchmarks reduces a firm's cost of debt. I use two proxies for a firm's cost of debt: credit ratings and initial bond yield spread. Results suggest that firms beating earnings benchmarks have a higher probability of rating upgrades and a smaller initial bond yield spread. Additional analyses indicate that (1) the benefits of beating earnings benchmarks are more pronounced for firms with high default risk; (2) beating the zero earnings benchmark generally provides the biggest reward in terms of a lower cost of debt; and (3) the reduction in the cost of debt is attenuated but does not disappear for firms beating benchmarks through earnings management. In sum, results suggest that there are benefits associated with beating earnings benchmarks in the debt market. These benefits vary by benchmark, firm default risk, and method utilized to beat the benchmark. Among other implications, this evidence suggests that the relative importance of specific benchmarks differs across the equity and bond markets.

International Bonds

2019 ◽  
pp. 249-264
Author(s):  
Soutonnoma Ouedraogo ◽  
David Scofield ◽  
Garrett C. Smith
Keyword(s):  
Sovereign Debt ◽  
Credit Rating ◽  
Equity Capital ◽  
Access To Credit ◽  
Macroeconomic Risk ◽  
International Equity ◽  
Debt Market ◽  
International Investors ◽  
The Cost ◽  
Balance Trade

Given the size of the global sovereign debt market is nearly as large as the entire international equity market, a thorough understanding of this market is useful to academics and practitioners alike. Sovereign bond markets allow nations to balance trade and fiscal policy, but a well-functioning domestic bond market and access to international investors are more complex than merely issuing sovereign debt. A nation’s credit rating affects both its economy in terms of domestic market stability as well as the economic stability of trade partners. Default and the restructuring of sovereign debt can trigger economic crisis. Moreover, the so-called sovereign ceiling has a real economic impact on domestic firms and can substantially affect access to credit as well as the cost of both debt and equity capital. The chapter also discusses the role of integration, effects of global macroeconomic risk factors, and diversification benefits.

scholarly journals Claim Dilution in the Municipal Debt Market

2017 ◽  
Author(s):  
Ivan Ivanov ◽  
Tom Zimmermann
Keyword(s):  
Debt Market ◽  
Municipal Debt
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