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Abstract: 

The municipal bond market has undergone dramatic changes over the last 20 years. Some of these changes relate to the use and activities of financial intermediaries, including financial advisors and investment banks, both of which have come under increasing scrutiny in light of the Great Recession’s impact on the finances of subnational entities. Given this evolving context and escalating criticisms, it is necessary to revisit the activities of these market actors in the municipal bond issuance process. To that end, this paper empirically investigates the factors associated with the fees charged by investment banks in the underwriting of municipal securities in the State of Texas between 1999 and 2010. The results of this analysis have direct policy implications for efficient subnational debt management practices as well as broader theoretical implications related to underwriter monopsony power, information asymmetry, financial intermediation, and debt management networks.

Keywords: Underwriting fees, underwriter monopsony power, information asymmetry, financial intermediation, debt management networks

Affiliations:  1: DePaul University; 2: University of South Carolina.