Another look at the effect of method of sale on the interest cost in the municipal bond market—a certification model

Jun Peng, Peter F. Brucato

Research output: Contribution to journalArticle

12 Scopus citations

Abstract

Whether competitive bidding or negotiated sale leads to lower borrowing cost for municipal debt issuers has been studied extensively in municipal finance research. There is a potential self-selection bias when estimating the relative cost effectiveness of these two methods of sale. This article argues that sale method can be viewed as a certification mechanism as issuers self-select themselves into either competitive or negotiated groups based on their perception of the underlying degree of information asymmetry. By correcting for this self-selection bias, we find that for issues with no or little information asymmetry, neither sale method has a significant cost advantage over the other.

Original languageEnglish (US)
Pages (from-to)73-95
Number of pages23
JournalPublic Budgeting and Finance
Volume23
Issue number1
DOIs
StatePublished - Mar 2003
Externally publishedYes

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics
  • Public Administration

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