"Information Asymmetry and Municipal Revenue Bonds".Kurtenbach, James M. and Vijayakumar, Jayaraman Journal of Public Budgeting, Accounting & Financial Management, Summer 1999, pp. 177-202. This article measures information asymmetry Information asymmetry Condition that information is known to some, but not all, participants. is the market for municipal revenue bonds Municipal revenue bond A bond issued to finance a public project that is funded by the revenues of the project. . It examines the relationship between bond ratings, sinking funds sinking fund, sum set apart periodically from the income of a government or a business and allowed to accumulate in order ultimately to pay off a debt. A preferred investment for a sinking fund is the purchase of the government's or firm's bonds that are to be paid , quality-differentiated audits, and measures of bond interest cost. The authors find that investors associate sinking fund provisions sinking fund provision A stipulation in many bond indentures that the borrower retire a certain proportion of the debt annually. The retirement may be effected by calling the bonds from the investors (if interest rates have declined) or by purchasing the in municipal revenue bonds with riskier projects or riskier issuers, either of which results in increased borrowing costs for issuers. They also found that Big Six auditors are significantly associated with higher interest costs, but are not associated with the use of sinking funds. In presenting their findings, the authors investigate three hypotheses: 1) a bond's rating is inversely related to the use of sinking funds; 3) Big Six auditors are inversely associated with revenue bond yield. Journal of Public Budgeting, Accounting & Financial Management is available from PrAcademic Press, 21760 Mountain Sugar Lane, Boca Raton Boca Raton (bō`kə rətōn`), city (1990 pop. 61,492), Palm Beach co., SE Fla., on the Atlantic; inc. 1925. Boca Raton is a popular resort and retirement community that experienced significant industrial development in the 1970s and 80s. , FL 33433 (www.fau.edu/divdept/cupa/journal.htm). Annual subscription rates are $95 for individuals or $28 5 for institutions. |
|
||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion