The Politics of Government Financial Management: Evidence from State Bonds

66 Pages Posted: 16 Jul 2011 Last revised: 22 Jul 2017

See all articles by Craig Brown

Craig Brown

Purdue University - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: July 16, 2017


In the $3.7 trillion U.S. state-and-local-government-bond market, greater issuance costs (lower issue-prices and greater underwriting fees) benefit financial institutions, while costing taxpayers. Campaign contributions by politically supportive underwriters can be associated with lower issuance costs. Alternatively, contributions can influence a politician to accept greater costs. This paper’s evidence suggests that contributions influence politicians: In the absence of an underwriter auction, underpricing increases with the chosen underwriter’s contributions relative to others. Moreover, the difference in the fees charged by contributing underwriters and those charged by non-contributing underwriters is 2.9%. In the presence of an underwriter auction, these results are statistically insignificant.

Keywords: Government Financial Management, Security Issuance, Underpricing, Campaign Contributions.

JEL Classification: H74, P16, G24

Suggested Citation

Brown, Craig O., The Politics of Government Financial Management: Evidence from State Bonds (July 16, 2017). Paolo Baffi Centre Research Paper No. 2011-102, Available at SSRN: or

Craig O. Brown (Contact Author)

Purdue University - Department of Finance ( email )

West Lafayette, IN 47907-1310
United States


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