The Politics of Government Financial Management: Evidence from State Bonds
National University of Singapore (NUS) - Department of Finance
March 31, 2016
Paolo Baffi Centre Research Paper No. 2011-102
In the $3.7 trillion U.S. state-and-local-government-bond market, lower issue-prices cost taxpayers, but may benefit financial underwriters. There is no evidence of underpricing in the presence of an underwriter auction. However in its absence, underpricing increases with the geographical distance between a governor and his underwriter campaign-contributors, and with the chosen underwriter’s contributions relative to others. The interaction between the two results distinguishes political support from influence: Conditional on the state choosing an underwriter that contributed generously, underpricing increases with underwriter proximity. The findings suggest that the quality of government financial outcomes is associated with political ties between politicians and bankers.
Number of Pages in PDF File: 1
Keywords: Government Financial Management, Security Issuance, Underpricing, Campaign Contributions.
JEL Classification: H74, P16, G24
Date posted: July 16, 2011 ; Last revised: April 12, 2016