Distance Still Matters: Evidence from Municipal Bond Underwriting

Posted: 26 Jun 2008

See all articles by Alexander W. Butler

Alexander W. Butler

Rice University - Jesse H. Jones Graduate School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: April 2008

Abstract

Using a sample of municipal bond offerings, I find that “local” investment banks have substantial comparative and absolute advantages over nonlocal counterparts--locals charge lower fees and sell bonds at lower yields. Local investment banks’ strongest comparative advantage is at underwriting bonds with higher credit risk and bonds not rated by rating agencies. These findings suggest that high-risk bonds and nonrated bonds are more difficult to evaluate and market, and that investment banks with a local presence are better able to assess “soft” information and place difficult bond issues.

Keywords: G24, G28, D80

Suggested Citation

Butler, Alexander W., Distance Still Matters: Evidence from Municipal Bond Underwriting (April 2008). The Review of Financial Studies, Vol. 21, Issue 2, pp. 763-784, 2008. Available at SSRN: https://ssrn.com/abstract=1151604 or http://dx.doi.org/hhn002

Alexander W. Butler (Contact Author)

Rice University - Jesse H. Jones Graduate School of Business ( email )

MS 531
Houston, TX 77005
United States
713-348-6341 (Phone)

HOME PAGE: http://www.owlnet.rice.edu/~awbutler/

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