Does Underwriter Reputation Matter in the Municipal Bond Market?

36 Pages Posted: 2 Nov 2006 Last revised: 13 Oct 2007

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

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

Daniels, Kenneth N. and Vijayakumar, Jayaraman, Does Underwriter Reputation Matter in the Municipal Bond Market?. Journal of Economics and Business, November-December 2007, Available at SSRN: https://ssrn.com/abstract=942008

Kenneth N. Daniels (Contact Author)

Daniels Foundation for Impact Investments and Development ( email )

New Jersey, NJ 07018
United States

Jayaraman Vijayakumar

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

Richmond, VA 23284
United States

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