What’s in a (school) name? Racial discrimination in higher education bond markets∗

Historically black colleges and universities (HBCUs) pay more in underwriting fees to issue tax-exempt bonds, compared to similar, non-HBCU schools. This appears to reflect higher deadweight costs of findings willing buyers: the effect is three times larger in the Deep South, where racial animus has historically been the highest. School attributes or credit quality explain almost none of the effects. For example, identical differences are observed between HBCU and non-HBCU bonds: 1) having AAA credit ratings, and 2) insured by the same company, even prior to the Financial Crisis of 2008. HBCU-issued bonds are also more expensive to trade in the secondary market, and when they do, sit in dealer inventory longer.