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1 – 10 of over 16000The esoteric area of financial derivatives has become quite salient in light of the financial crisis of the last few years. In the public sector, state and local governments have…
Abstract
The esoteric area of financial derivatives has become quite salient in light of the financial crisis of the last few years. In the public sector, state and local governments have increasingly employed derivatives in their bond financings. This paper analyzes state and local governments’ use of a specific type of municipal derivative instrument (a floating-to-fixed interest rate swap) in a specific type of transaction (bond refinancing). The paper provides a case study of an executed bond refinancing transaction that employed a floating-to-fixed interest rate swap quantifying the substantial long-term costs financial derivatives can impart on state and local governments. The paper concludes with some specific lessons learned about debt-related derivative usage for public financial managers and offers some suggestions for further empirical and theoretical research in this area of public financial management.
Yiming Hu, Ying Yang and Pengfei Han
The purpose of this paper is to examine the difference of credit enhancement of variously secured bonds issued by local government financing platform bond (LGFPB).
Abstract
Purpose
The purpose of this paper is to examine the difference of credit enhancement of variously secured bonds issued by local government financing platform bond (LGFPB).
Design/methodology/approach
The approaches to secure the bonds usually include mortgage, collateral, guarantee, etc.
Findings
Using a sample of LGFPBs issued during the 2007-2013 period, the authors find that all of the approaches to secure the bonds would increase the bond rating and that compounded approaches have a higher credit enhancement effect than single approaches. Among these approaches, the requirement of collateral has the strongest enhancement effect. Moreover, the authors find that the guarantee provided by a state-owned bank or enterprise increases the bond rating more than the guarantee provided by other local government financing platforms.
Research limitations/implications
The findings in this study suggest that the credit enhancement would be deeply affected by the approach used to secure the bond.
Practical implications
These results can help the local government make better decisions when issuing bond.
Originality/value
This study empirically analyzes the different credit enhancement approaches for securing LGPFBs for the first time and contributes to the literature regarding credit ratings of local government bonds.
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Keywords
Robert A. Greer and Jekyung Lee
To resolve the limited access to capital by local governments due to the Great Recession, the United States Federal Government responded with the American Recovery and…
Abstract
To resolve the limited access to capital by local governments due to the Great Recession, the United States Federal Government responded with the American Recovery and Reinvestment Act (ARRA) which included the Build America Bond (BAB) program. The result of this program was considerable interest cost savings to state and local governments, but many local governments chose to issue traditional tax-exempt bonds instead of BABs. Using a policy diffusion framework and hazard model approach, we identify factors that affected the speed of BAB adoption by local governments. Results show that underwriter and financial adviser experience along with the internal characteristics of the local governments played a significant role in adoption. These findings have implications for future fiscal policies targeting local governments for the purpose of timely economic recovery.
Benny Hutahayan, Mohamad Fadli, Satria Amiputra Amimakmur and Reka Dewantara
This study aims to analyze the causes and implications of legal uncertainty in the issuance of conventional municipal bonds in Indonesia and to draw lessons from Vietnam’s…
Abstract
Purpose
This study aims to analyze the causes and implications of legal uncertainty in the issuance of conventional municipal bonds in Indonesia and to draw lessons from Vietnam’s approach in providing better legal certainty.
Design/methodology/approach
This study adopts a normative legal method with a legislative approach and applies a comparative approach. Data sources involve primary and secondary legal materials from both Indonesia and Vietnam.
Findings
The legal uncertainty is caused by a lack of coherence and consistency in legislation. Based on Vietnam’s experience, Indonesia can gain valuable insights related to providing strong legal certainty for parties involved in issuing or investing through conventional municipal bonds.
Research limitations/implications
This study focuses on the comparative legal analysis of conventional municipal bonds in Indonesia with Vietnam.
Practical implications
This research provides recommendations for the refinement of legislation regarding conventional municipal bonds to the government.
Social implications
This study is related to legal certainty as a strategy to attract investment through municipal bonds and to ensure the municipal bond issuance process is transparent and efficient.
Originality/value
This study provides a comparative perspective on the issuance of municipal bonds in Indonesia, with a special focus on Vietnam, emphasizing the urgency of harmonization in legal regulation and the sustainability of legal certainty.
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Juan Chen, Hongling Guo and Zuoping Xiao
This study aims to investigate how high-speed railway (HSR) development affects urban construction investment (UCI) bond yield spreads based on China’s background.
Abstract
Purpose
This study aims to investigate how high-speed railway (HSR) development affects urban construction investment (UCI) bond yield spreads based on China’s background.
Design/methodology/approach
This study constructs a quasi-natural experiment and adopts regression analyses to empirically examine the relation between HSR development and UCI bond yield spreads. The empirical analysis is based on a Chinese sample of 15,109 bond offering observations from 2008 to 2019.
Findings
The results show that HSR development reduces UCI bond yield spreads. Mechanistic analysis shows that HSR development increases land prices and the level of urbanization, which in turn lowers the UCI bond yield spreads. In addition, the impact of HSR development on UCI bond yield spreads is more significant at higher marketization levels and lower degrees of dependence on land finance cities where UCI corporations are located.
Research limitations/implications
The results imply that transportation infrastructure improvement, such as HSR development, helps to enhance the credit of local governments and the solvency of UCI corporations and ultimately reduces the financing cost of UCI bonds.
Originality/value
This paper provides theoretical support and empirical evidence for the impact of transportation infrastructure construction on the implicit debt risks of local governments in China, which enriches the research on the “HSR economy” from a micro perspective and expands the research on the influencing factors of local governments’ debt risk.
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Bowen Jia, Jiaying Wu, Juan Du, Yun Ji and Lina Zhu
The purpose of this paper is to calculate the local guaranteed fiscal revenue with the local fiscal revenue of 31 provinces, and predict their guaranteed fiscal revenue in 2018…
Abstract
Purpose
The purpose of this paper is to calculate the local guaranteed fiscal revenue with the local fiscal revenue of 31 provinces, and predict their guaranteed fiscal revenue in 2018 with the artificial neural network (ANN).
Design/methodology/approach
The principal components analysis (PCA), particle swarm optimization (PSO) and extreme learning machine (ELM) model was designed to produce the inputs of KMV model. Then the KMV model was used for obtaining the default probabilities under different issuance scales. Data were collected from Wind Database. MATLAB 2018b and SPSS 22 were used in the field of modeling and results analysis.
Findings
This study’s findings show that PCA–PSO–ELM proposed in this research has the highest accuracy in terms of the prediction compared with ELM, back propagation neural network and auto regression. And PCA–PSO–ELM–KMV model can calculate the secure issuance scale of local government bonds effectively.
Practical implications
The sustainability forecast in this study can help local governments effectively control the scale of debt issuance, strengthen the budget management of local debt and establish the corresponding risk warning mechanism, which could make local governments maintain good credit ratings.
Originality/value
This study sheds new light on helping local governments avoid financial risks effectively, and it is conducive to establish a debt repayment reserve system for local governments and the proper arrangement for stock debt.
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Darko B. Vukovic, Moinak Maiti, Dmitry Kochetkov and Alexander Bystryakov
This paper study regional attractiveness through passive portfolio investment based on duration, immunization and convexity (in case of higher interest rate volatility) of…
Abstract
Purpose
This paper study regional attractiveness through passive portfolio investment based on duration, immunization and convexity (in case of higher interest rate volatility) of municipal bonds by using data from Standard and Poor’s. The massive variety of financial incentives to promote regional investment attractiveness is dependent on governmental strategy. Municipal bonds are the one of the most efficient ways of direct investments in the region, however, it is still a question of a good balance between a certain rate of return and an adequate risk. The purpose of this paper is to analyze the investment opportunities in municipal revenue bonds.
Design/methodology/approach
This study developed a model of investing using municipal bonds with the case of their immunization and analyze attractiveness of such investment. The theoretical model assumes a situation where the local government finances its capital projects through municipal revenue bonds. Such situations influence strongly on regional or local competitiveness provided by local government policy.
Findings
An analysis of the municipal bond market indicates that both municipal general and revenue bonds had stable and good level of yields to maturity in the past ten years. Their standard deviations were very low and in the past two years almost approached the level of standard deviations of treasury bonds. With the duration of 4–6 years on 5-year investment in municipal revenue bonds and their immunization, it is possible to provide good returns for investor.
Research limitations/implications
The limitation of this study concerns theoretical situation where local government will use non-market-based policy to reduce the interest rates and that will influence on rise of municipal bond liquidity premium (price distortion). This situation will make municipality bonds less attractive for investing, especially because of lower liquidity on secondary market. Also, this model is applicable in regions that have developed financial markets.
Practical implications
This research suggests governments a sustainable framework to use municipal bonds as a strategy for capital targeting in regions.
Social implications
This research is related to professional investors’ strategy with projects that have the highest investment potential; this is good way for an adequate allocation of resources (regional competitiveness).
Originality/value
This paper analyzes very rare subject involving local government strategy of finance and portfolio investment in municipal bonds. There is a huge gap in the literature on this issue. Also, this study provides the model that can be used as a case for higher local competitiveness.
Details
Keywords
Foreign investment in local government bond markets.
Details
DOI: 10.1108/OXAN-DB206247
ISSN: 2633-304X
Keywords
Geographic
Topical
Steve Modlin and LaShonda M. Stewart
Decreasing revenues among local governments across the country have placed an increased focus on governmental financial practices. For states with local government financial…
Abstract
Decreasing revenues among local governments across the country have placed an increased focus on governmental financial practices. For states with local government financial oversight organizations, the ratios and other benchmarks used to assess fiscal stability face increased scrutiny. This study examines financial reports sent to North Carolina’s financial oversight body, the Local Government Commission (LGC), to determine the types of operational and policy practices that can lead to fiscal stress based on guidelines established by the LGC. Findings indicate that lowering levels of fund balance, increased salaries, increased debt service levels, and the presence of a countywide water system all increased the probability of a county government receiving notice of potential financing problems requiring immediate action.