Social Capital and the Municipal Bond Market

Pei Li, Leo Tang () and Bikki Jaggi
Additional contact information
Pei Li: Southwestern University of Finance and Economics
Leo Tang: Lehigh University
Bikki Jaggi: Rutgers, The State University of New Jersey

Journal of Business Ethics, 2018, vol. 153, issue 2, No 11, 479-501

Abstract: Abstract We examine the influence of social capital in the municipal bond market. Defined as the norms and networks that encourage cooperation, social capital is a social construct which captures a region’s level of altruism, trustworthiness, and propensity to honor obligations. We expect that municipalities with high social capital are more trustworthy and likely to honor their debt obligations, which will result in lower bond yields. Our findings confirm that the bonds issued by municipalities located in high social capital counties exhibit lower yields compared to the municipalities located in low social capital counties. Our findings are also supported by bond prices in the secondary market, which shows that bonds from the municipalities located in high social capital regions have higher prices. Additional tests reveal that the influence of social capital is stronger for general obligation bonds, suggesting that social capital matters more for bonds where the willingness of municipalities to pay taxes is an important factor. Lastly, we document that the bonds of municipalities in high social capital areas are less likely to have insurance, suggesting that social capital may act as a substitute for bond insurance.

Keywords: Social capital; Municipal bonds; Bond insurance; General obligation bonds (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

Downloads: (external link)
http://link.springer.com/10.1007/s10551-016-3355-8 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:jbuset:v:153:y:2018:i:2:d:10.1007_s10551-016-3355-8

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/10551/PS2

DOI: 10.1007/s10551-016-3355-8

Access Statistics for this article

Journal of Business Ethics is currently edited by Michelle Greenwood and R. Edward Freeman

More articles in Journal of Business Ethics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().