The Role and Impact of Financial Advisors in the Market for Municipal Bonds

42 Pages Posted: 13 Mar 2006

See all articles by Kenneth N. Daniels

Kenneth N. Daniels

Daniels Foundation for Impact Investments and Development

Jayaraman Vijayakumar

Virginia Commonwealth University (VCU) - Department of Accounting

Abstract

Significantly more and more issuers of municipal bonds use the services of financial advisors during the bond issuance process. We investigate the benefits to issuers and market participants arising from the role of financial advisors in the issuance of municipal bonds. Using a large sample of 9493 tax-exempt municipal bonds, we show that financial advisors have significant impact on borrowing costs, reoffering yields and underwriter gross spreads. Our results are more pronounced for revenue bonds, particularly for negotiated revenue issues. In addition, our results show significant advantages to using a financial advisor for refunding issues supporting the view that financial advisors play important roles for more complex issues. Our results are consistent with the interpretation that financial advisors provide important and useful services resulting in monitoring and information asymmetry reduction benefits accruing to issuers and market participants.

Keywords: Financial advisors, municipal bonds, monitoring

Suggested Citation

Daniels, Kenneth N. and Vijayakumar, Jayaraman, The Role and Impact of Financial Advisors in the Market for Municipal Bonds. Journal of Financial Services Research, August 2006, Available at SSRN: https://ssrn.com/abstract=887410

Kenneth N. Daniels

Daniels Foundation for Impact Investments and Development ( email )

New Jersey, NJ 07018
United States

Jayaraman Vijayakumar (Contact Author)

Virginia Commonwealth University (VCU) - Department of Accounting ( email )

Richmond, VA 23284
United States

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