Hostname: page-component-78c5997874-lj6df Total loading time: 0 Render date: 2024-11-15T17:39:36.212Z Has data issue: false hasContentIssue false
  • English
  • Français

Market Structure versus Information Costs as Determinants of Underwriters' Spreads on Municipal Bonds

Published online by Cambridge University Press:  06 April 2009

W. W. Higgins  and
B. J. Moore
Get access Rights & Permissions [Opens in a new window]

Extract

The market for underwriting services provides a valuable opportunity to test two competing hypotheses in monopsony theory. When applied to the area of investment banking, the theory implies that spread behavior ought to be influenced not only by the average costs of providing underwriting services, but also by the extent of vigorous competition. In competitive markets the prices of products and services tend to reflect minimum average costs in the long run. When competition declines, spreads can be expected to widen. A number of empirical studies have established that spread behavior is in fact dependent on the extent of bidding competition [5, 8, 9, 2]. “The intensity of competition in underwriting new issues of tax exempts has the expected effect on underwriters' spreads, that is, the difference between buying and selling prices; spreads decrease as the degree of competition increases” [2, p. 707].

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 15 , Issue 1 , March 1980 , pp. 85 - 97
Copyright
Copyright © School of Business Administration, University of Washington 1980

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

[1]Hastie, Larry K. “Determinants of Municipal Bond Yields.” Journal of Financial and Quantitative Analysis, Vol. 7 (06 1972).Google Scholar
[2]Kessel, Rueben. “A Study of the Effects of Competition in the Tax-Exempt Bond Market.” The Journal of Political Economy, Vol. 79 (07/August 1971), pp. 706–738.Google Scholar
[3]Mendelson, Morris. “Determinants of Underwriters' Spreads on Tax-Exempt Bond Issues Comment.” Journal of Financial and Quantitative Analysis (06 1968), pp. 215–224.CrossRefGoogle Scholar
[4]Rabinowitz, Allan. Municipal Bond Finance and Administration. New York (1969).Google Scholar
[5]Robinson, Roland I.Postwar Markets for State and Local Government Securities. Princeton, N.J. (1960).CrossRefGoogle Scholar
[6]Stigler, George J. “Economics of Information.” The Journal of Political Economy, Vol. 69, No. 3 (06 1961), pp. 213–225.CrossRefGoogle Scholar
[7]Walker, John E. “Municipal Bond Underwriting.” State and Local Public Facility Needs and Financing, Vol. 2. Washington, D.C.: Joint Economic Committee (1966).Google Scholar
[8]West, Richard. “New Issue Concessions on Municipal Bonds.” The Journal of Business, Vol. 38, No. 2 (04 1965), pp. 135–148.CrossRefGoogle Scholar
[9]West, Richard. “Determinants of Underwriters' Spreads on Tax-Exempt Bond Issues.” Journal of Financial and Quantitative Analysis, Vol. 2, No. 3 (09 1967), pp. 241–263.Google Scholar