Corruption, Political Connections, and Municipal Finance

• 成果类型: Article
• 署名作者: Butler, Alexander W.; Fauver, Larry; Mortal, Sandra
• 署名单位: University of Texas System; University of Texas Dallas; University of Tennessee System; University of Tennessee Knoxville; University of Memphis
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhp010
• 发表日期: 2009
• 页码: 2873
• 关键词: Intermediation; COSTS

摘要

We show that state corruption and political connections have strong effects on municipal bond sales and underwriting. Higher state corruption is associated with greater credit risk and higher bond yields. Corrupt states can eliminate the corruption yield penalty by purchasing credit enhancements. Underwriting fees were significantly higher during an era when underwriters made political contributions to win underwriting business. This pay-to-play underwriting fee premium exists only for negotiated bid bonds where underwriting business can be allocated on the basis of political favoritism. Overall, our results show a strong impact of corruption and political connections on financial market outcomes. (JEL D73, G20, G22, G24, H74)