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Article
Publication date: 1 March 2012

Martin J. Luby

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

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.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 24 no. 1
Type: Research Article
ISSN: 1096-3367

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Article
Publication date: 20 February 2017

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.

Details

China Finance Review International, vol. 7 no. 1
Type: Research Article
ISSN: 2044-1398

Keywords

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Article
Publication date: 1 March 2016

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.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 28 no. 2
Type: Research Article
ISSN: 1096-3367

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Article
Publication date: 20 April 2020

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…

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.

Details

Kybernetes, vol. 50 no. 5
Type: Research Article
ISSN: 0368-492X

Keywords

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Abstract

Details

Funding Transport Systems
Type: Book
ISBN: 978-0-08-043071-3

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Article
Publication date: 6 May 2020

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

Competitiveness Review: An International Business Journal , vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1059-5422

Keywords

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Expert briefing
Publication date: 28 October 2015

Foreign investment in local government bond markets.

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Expert briefing
Publication date: 23 July 2015

China's local government debt bailout.

Details

DOI: 10.1108/OXAN-DB201164

ISSN: 2633-304X

Keywords

Geographic
Topical
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Article
Publication date: 1 March 2014

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

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.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 26 no. 3
Type: Research Article
ISSN: 1096-3367

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Article
Publication date: 1 March 2013

Martin J. Luby and Robert S. Kravchuk

Debt-related financial derivative usage by state and local governments became a very salient topic over the last few years in light of the Great Recession and its impacts…

Abstract

Debt-related financial derivative usage by state and local governments became a very salient topic over the last few years in light of the Great Recession and its impacts on the efficacy of these financial instruments. However, there has been a dearth of systematic research on the types and kinds of derivatives state and local governments have actually employed in recent years. While anecdotes of financial derivative usage has grabbed the headlines (such as the case of Jefferson County, Alabama), there has been little research examining the derivative portfolios among states or local governments pre- and post-Great Recession. Using descriptive research, this paper attempts to rectify this gap in the literature for state governments as a means of better understanding how the recent financial crisis has impacted the critical debt management decision to use financial derivatives.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 25 no. 2
Type: Research Article
ISSN: 1096-3367

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