Private Information in Bank Certification: Evidence from U.S. And Non-U.S. Bank Standby Letters of Credit

16 Pages Posted: 17 Jul 2015

See all articles by Roger D. Stover

Roger D. Stover

Iowa State University - Department of Accounting and Finance

Mark Schmitz

Rutgers, The State University of New Jersey - Rutgers University, Camden

Date Written: 1997

Abstract

This article inquires into the factors that affect the pricing of new issues of corporate tax-exempt bonds backed by standby letter of credit of U.S. and foreign commercial banks. Previous literature suggests that U.S. banks possess superior certifying ability in this market due to their unique access to low-cost private information. This article also examines the extent to which such information is priced by the market. The results indicate that pricing of these bonds depends primarily on the quality of the commercial bank issuing the standby letter of credit irrespective of where the bank is domiciled. The quality influence on yield occurs indirectly through its significant effect on the issue’s bond rating.

Keywords: bank certification, industrial revenue bond financing, Moody's bond rating, standby letter of credit

JEL Classification: G21

Suggested Citation

Stover, Roger D. and Schmitz, Mark, Private Information in Bank Certification: Evidence from U.S. And Non-U.S. Bank Standby Letters of Credit (1997). Multinational Finance Journal, Vol. 1, No. 4, p. 309-324, 1997, Available at SSRN: https://ssrn.com/abstract=2631557

Roger D. Stover (Contact Author)

Iowa State University - Department of Accounting and Finance ( email )

College of Business
Ames, IA 50011-2063
United States
515-294-8114 (Phone)

Mark Schmitz

Rutgers, The State University of New Jersey - Rutgers University, Camden ( email )

Camden, NJ 08102
United States

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