The Politics of Government Financial Management: Evidence from State Bonds
National University of Singapore (NUS) - Department of Finance
March 3, 2014
Paolo Baffi Centre Research Paper No. 2011-102
Bonds in the $3.7 trillion U.S.A. state-and-local government-bond market are historically safe assets; underpricing (which costs voter-taxpayers) should be limited. However, underwriters (who prefer underpricing) contribute to politicians and away-election timing is associated with underpricing. In the absence (presence) of underwriter auctions, bonds are underpriced by 2% (unaffected) when a contributing-underwriter is selected naïvely. The propensity to choose contributing-underwriters and auctions decreases as underpricing increases. A politician’s victory-margin (disclosure-law quality) is positively (negatively) related to underwriter-auction (contributing-underwriter) choice. The findings suggest that poor government financial management is associated with away-election timing, weak disclosure laws, tight races, and campaign-finance agency costs.
Number of Pages in PDF File: 63
Keywords: Government Financial Management, Security Issuance, Underpricing, Political Competition, Elections, Campaign Contributions.
JEL Classification: H74, P16, G24
Date posted: July 16, 2011 ; Last revised: April 5, 2014
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