Fiduciary Duty in the Municipal Bonds Market
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arXiv
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| Format: | Preprint |
| Publié: |
2024
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| _version_ | 1866929394364186624 |
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| author | Malakar, Baridhi |
| author_facet | Malakar, Baridhi |
| contents | I examine whether the imposition of fiduciary duty on municipal advisors affects bond yields and advising fees. Using a difference-in-differences analysis, I show that bond yields reduce by $\sim$9\% after the imposition of the SEC Municipal Advisor Rule due to lower underwriting spreads. Larger municipalities are more likely to recruit advisors after the rule is effective and experience a greater reduction in yields. However, smaller issuers do not experience a reduction in offering yields after the SEC Rule. Instead, their borrowing cost increases if their primary advisor exits the market. Using novel hand-collected data, I find that the average advising fees paid by issuers does not increase after the regulation. Overall, my results suggest that while fiduciary duty may mitigate the principal-agent problem between some issuers and advisors, there is heterogeneity among issuers. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2406_15197 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | Fiduciary Duty in the Municipal Bonds Market Malakar, Baridhi General Finance I examine whether the imposition of fiduciary duty on municipal advisors affects bond yields and advising fees. Using a difference-in-differences analysis, I show that bond yields reduce by $\sim$9\% after the imposition of the SEC Municipal Advisor Rule due to lower underwriting spreads. Larger municipalities are more likely to recruit advisors after the rule is effective and experience a greater reduction in yields. However, smaller issuers do not experience a reduction in offering yields after the SEC Rule. Instead, their borrowing cost increases if their primary advisor exits the market. Using novel hand-collected data, I find that the average advising fees paid by issuers does not increase after the regulation. Overall, my results suggest that while fiduciary duty may mitigate the principal-agent problem between some issuers and advisors, there is heterogeneity among issuers. |
| title | Fiduciary Duty in the Municipal Bonds Market |
| topic | General Finance |
| url | https://arxiv.org/abs/2406.15197 |