Should more local governments purchase a bond rating?

Should more local governments purchase a bond rating? We investigate whether issuers that choose to forgo a bond rating suffer an interest cost penalty greater than the cost of the rating. We use estimated ratings provided by Moody’s Investor Service to proxy for what the rating would have been if it had been purchased. We find that the primary factors associated with an issuer’s decision to purchase a rating are the rating expected by the issuer and the extent to which an issue is marketed locally. After controlling for self-selection bias, we find that the issuers that forgo a rating do not suffer an interest cost penalty. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Should more local governments purchase a bond rating?

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Publisher
Springer US
Copyright
Copyright © 2008 by Springer Science+Business Media, LLC
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-008-0095-6
Publisher site
See Article on Publisher Site

Abstract

We investigate whether issuers that choose to forgo a bond rating suffer an interest cost penalty greater than the cost of the rating. We use estimated ratings provided by Moody’s Investor Service to proxy for what the rating would have been if it had been purchased. We find that the primary factors associated with an issuer’s decision to purchase a rating are the rating expected by the issuer and the extent to which an issue is marketed locally. After controlling for self-selection bias, we find that the issuers that forgo a rating do not suffer an interest cost penalty.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Sep 23, 2008

References

  • The search for information by underwriters and its impact on municipal interest costs
    Benson, ED
  • Should all tax-exempt borrowers with investment-grade quality acquire credit ratings?
    Hsueh, LP; Liu, YA
  • SEC’s Cox asks Congress for new muni measures: clarifies disclosure legislation goals
    Hume, L; Ackerman, A
  • Competitive bidding for municipal bonds: new tests of the underwriter search hypothesis
    Leonard, PA
  • State taxation of interest income and municipal borrowing costs
    Lovely, ME; Wasylenko, MJ

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