Explaining Interest Rates in Local Government Borrowing

Bastida, Francisco; Guillamón, María‐Dolores; Benito, Bernardino

doi:10.1080/10967494.2014.874257

Cited by 24 publications

(20 citation statements)

References 54 publications

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“…Therefore, as in Martell [15] and Bastida et al [16], we also find that investors require a higher risk premium to invest in LGs whose revenues depend on other government entities. Interestingly, transfers from other governments seem to have a larger impact on the bond spread than the debt burden, which is widely studied in the literature [20][21][22]31,32], and directly affects the debt service.…”

Section: Findings and Discussionsupporting

confidence: 81%

“…Martell [15] states that lower borrowing rates are related to higher revenues and lower expenditures. Bastida et al [16] also state that a surplus on current accounts reduces sovereign credit spreads; therefore, the ratio of current savings to current revenues (current savings as current revenues minus non-financial current expenditures) is controlled in their model. Specifically, the measurement of these two variables is different across the literature, by using either: the rate of revenue growth and expenditures per capita to measure the two variables of revenues and expenditures separately [16,17]; or the current balance to include revenues and expenditures in one variable [18][19][20][21][22].…”

Section: Internal Financial Factors Determining Lgs' Cost Of Debtmentioning

confidence: 99%

“…According to Chapman [23], LGs face more risk when they rely on intergovernmental revenues because they are more uncertain about their revenue inflows, since decisions about these amounts are made by other entities. The variable of tax revenue over total revenues is included in the models by Martell [15] and Bastida et al [16].…”

Section: Internal Financial Factors Determining Lgs' Cost Of Debtmentioning

confidence: 99%

“…Our study does not support the relevance of such important financial ratios as the current balance ratio (CBR). While it usually is considered one of the most important factors of financial distress assessment [16], its computation from the public accounting system in use (which is not accrual-based) might hamper its validity and understandability by investors. For this reason, investors are better to rely on other easy-to-compute and easy-to-understand measures.…”

Section: Moreovermentioning

confidence: 99%

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Municipal Bond Debt and Sustainability in a Non-Mature Financial Market: The Case of Italy

2018

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Local government (LG) debt increased worldwide during the past decade. Yet, LGs need increased access to financing so they can maintain and expand their community’s infrastructure. Expanding an LG’s bond-related debt (while continuing to meet ongoing debt-service obligations) is essential to its sustainability. An LG must both contain its credit risk and make its risk profile available to potential investors. Credit risk determinants in mature bond markets (e.g., the U.S.) have received considerable attention while those in non-mature markets have not. This paper contributes to the sustainable development literature by (a) identifying the risk-premium drivers in non-mature markets (using the bond market for Italian LGs as an example); and (b) providing LG policymakers with guidance on formulating policies to reduce their debt cost (either directly, by targeting its determinants, or indirectly, by improving the bond market’s functioning). LGs with comparatively high financial dependency on other governments, high criminal activity, and low operating revenues incurred higher bond-related costs than LGs without these characteristics. These LGs can improve their sustainability by (a) providing transparent and understandable financial information to potential investors; (b) reducing criminal activity; and, (c) increasing the frequency of external auditing.

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Section: Findings and Discussionsupporting

confidence: 81%

Section: Internal Financial Factors Determining Lgs' Cost Of Debtmentioning

confidence: 99%

Section: Internal Financial Factors Determining Lgs' Cost Of Debtmentioning

confidence: 99%

Section: Moreovermentioning

confidence: 99%

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Municipal Bond Debt and Sustainability in a Non-Mature Financial Market: The Case of Italy

2018

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“…There is a body of research on the US municipal bond market and the impact on it of accounting, and in some cases auditing, reviewed by Ingram, Raman, & Wilson (1987) and Ingram et al (1987, p.121). The evidence shows that government financial reports provide timely and relevant information to the financial markets (Reck et al 2004, p.1) and that accounting information is significantly associated with yields (Bastida et al 2014). A recent study extended research on signaling and municipal bonds to Spain (Bastida et al 2014) and found that the municipal financial situation influences interest rates.…”

Section: The Signaling Explanationmentioning

confidence: 99%

The value of public sector audit: Literature and history

Hay

Cordery

2017

Journal of Accounting Literature

118

111

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This paper explores the value of financial statement auditing in the public sector. The study applies theory about auditing from the private sector as well as the public sector to explore ways in which public sector auditing can be expected to be valuable. It shows that there are a number of complementary explanations that can be applied to examine the value of public audit, including agency, signaling, insurance, management control, governance and confirmation explanations. The evidence from research and history is generally consistent with the agency and management control explanations. There is some support for the signaling and insurance explanations, while research evidence suggests that governance has differing impact in the public sector compared to the private. The confirmation hypothesis is also potentially relevant. Reviewing the history of the development of public sector auditing functions shows that at least some developments were consistent with explanations such as agency theory and management control. Auditing in the public sector is an area where more research is valuable. The paper concludes with a discussion of issues for further investigation.

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Exchange Rate Volatility and ESG Performance: An International Empirical Analysis

Al Amosh

2024

J Corp Accounting Finance

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This study examines the impact of exchange rate volatility (ERV) on environmental, social, and governance (ESG) performance using a large dataset of 15,196 firms from various countries, covering the period from 2012 to 2019. By employing a comprehensive set of statistical tests, including the system generalized method of moments (GMM) estimation technique, the research provides robust empirical evidence on how ERV influences different dimensions of ESG performance. The results reveal a significant negative effect of ERV on ESG performance, indicating that greater exchange rate instability adversely impacts firms' sustainability practices across ESG aspects. Companies may have difficulty complying with evolving regulations and stakeholder expectations when faced with volatile exchange rates, negatively impacting their ESG performance. Regulatory responses to exchange rate fluctuations may also create compliance burdens, and the difficulty in securing resources limits their ability to invest in sustainable technologies and practices. From an efficient market hypothesis (EMH) perspective, these findings suggest that ERV introduces additional risks and uncertainties that the market reflects in corporate valuations and performance metrics, thereby affecting ESG outcomes. The study highlights implications for policymakers, investors, and corporate managers, emphasizing the need for strategies to mitigate the adverse effects of ERV on ESG performance. Limitations of the study and directions for future research are discussed, calling for further exploration of the interplay between macroeconomic factors and corporate sustainability initiatives.

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Explaining Interest Rates in Local Government Borrowing

Cited by 24 publications

References 54 publications

Municipal Bond Debt and Sustainability in a Non-Mature Financial Market: The Case of Italy

Municipal Bond Debt and Sustainability in a Non-Mature Financial Market: The Case of Italy

The value of public sector audit: Literature and history

Exchange Rate Volatility and ESG Performance: An International Empirical Analysis

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