Distance Still Matters: Evidence from Municipal Bond Underwriting
نویسنده
چکیده
We provide evidence of “soft” information production in investment banking. Using 2191 municipal bond offerings from 1997-2001, we find that “local” investment banks have substantial comparative and absolute advantages over non-local counterparts – locals charge lower fees and sell bonds at lower yields. Local investment banks’ strongest comparative advantage is at underwriting bonds with higher credit risk and those bonds not rated by rating agencies. Our interpretation is that high-risk bonds and non-rated bonds are more difficult to evaluate and market, and investment banks with a local presence are better able to assess “soft” information and place difficult bond issues. JEL Codes: G24, G28, D80
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