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The Politics of Government Financial Management: Evidence from State Bonds


Craig Brown


National University of Singapore (NUS) - Department of Finance

March 3, 2014

Paolo Baffi Centre Research Paper No. 2011-102

Abstract:     
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

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Date posted: July 16, 2011 ; Last revised: April 5, 2014

Suggested Citation

Brown, Craig, The Politics of Government Financial Management: Evidence from State Bonds (March 3, 2014). Paolo Baffi Centre Research Paper No. 2011-102. Available at SSRN: http://ssrn.com/abstract=1885301 or http://dx.doi.org/10.2139/ssrn.1885301

Contact Information

Craig O. Brown (Contact Author)
National University of Singapore (NUS) - Department of Finance ( email )
Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore
+65 6516-6815 (Phone)
+65 6779-2083 (Fax)
HOME PAGE: http://bschool.nus.edu.sg/staffprofile/bizcb
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