Does Underwriter Reputation Matter in the Municipal Bond Market?
36 Pages Posted: 2 Nov 2006 Last revised: 13 Oct 2007
We examine the role of underwriter reputation in the tax-exempt municipal bond market. Using a large sample of 10,239 tax-exempt municipal bonds, we show that generally, reputation matters. Municipal bond issues lead managed by larger and more prestigious underwriters have significantly lower borrowing costs, lower yields, and lower underwriting gross spreads. Our results are consistent with the view that reputation facilitates underwriter activities that leads to reducing information asymmetries between borrowers and issuers in the municipal bond market. Our results are also consistent with larger and more reputable underwriters providing a certificatory role for issues underwritten by them.
Keywords: Underwriter Reputation, Municipal Bonds, Bond Yields
JEL Classification: G24, H72, H74
Suggested Citation: Suggested Citation