Persistent Underwriter Use and the Cost of Borrowing

Mark D. Robbins and Bill Simonsen

Municipal Finance Journal, 2008, vol. 28, issue 4, 1 - 13

Abstract: Most governments issue municipal bonds only rarely, and given the complexity of the task, reliance upon outside experts seems prudent. How are the relationships with these experts configured? This article examines the effects of persistent use of the same underwriter on borrowing costs. If a persistent relationship works in the favor of issuers, the cost of borrowing for those issuers should be lower than for those who have not built and sustained such relationships. If, instead, underwriters are using relationships to gain a pricing advantage, then these costs should be higher. This study of Missouri bond issuers finds that persistent use of the same underwriter for negotiated sales is a significant determinant of higher interest costs for issuers.

Date: 2008
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