Should more local governments purchase a bond rating?

Allen, Arthur C.; Sanders, George; Dudney, Donna

doi:10.1007/s11156-008-0095-6

Cited by 7 publications

(2 citation statements)

References 28 publications

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“…Our results are therefore consistent with the view of Rivers and Yates [31] and Simonsen et al [60], who argue that larger LGs face a lower cost of financing since they can access the national bond market. However, it is important to consider that in the Italian market LGs may still be able to obtain a lower cost of financing through private placement (via foundations/local investors) of their bonds, thus resembling the dynamics described in Allen et al [61]. This is also evident in our sample, where certain small LGs (e.g., City of San Felice sul Panaro) have even been granted a negative spread at issuance.…”

Section: Moreoversupporting

confidence: 67%

“…Smaller issuers may pay higher costs if they are located in regions with unfavorable economic and demographic characteristics [31,60]. However, Allen et al [61] doubt this view, as they expect local investors to be more knowledgeable about local issuers, in which case the interest cost can therefore be lower.…”

Section: Specific Local Socio-economic Factors Determining Lgs' Cost mentioning

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: Moreoversupporting

confidence: 67%