Should governments prohibit negotiated sales of municipal bonds?
Prof. Burton Hollifield
PNC Professor of Finance
Professor of Financial Economics
Associate Dean
Tepper School of Business
Legislation in several states bans negotiated sales of municipal bonds that fund public education. What are the costs and benefits associated with forcing auctioned sales of municipal bonds? We hand collect the legal provisions relating to the sale of bonds for each bond type in each state. In a sample of 369,482 school bonds issued between 2004 and 2014, sales restrictions lower offering yields by 17 basis points and, yet, most unconstrained issuers use negotiated sales. An IV approach shows that issuers’ negotiation benefits are mostly latent, increasing yields by 4 basis points. Negotiated sales would be cost efficient for 38% of issuers in restricted states.
