We study whether the integrity of local governments has effects on municipal bond coupon rate. We conjecture that higher integrity is associated with lower bond coupon rate. One of proxies for the integrity is the integrity index which Anti-Corruption and Civil Rights Commission of Korea announces annually. The high degree of the index implies high integrity. We also use the number of crimes by local government officials as the integrity measure. Empirical results show that Increasing a unit of integrity is equivalent to decreasing 0.34% of municipal coupon bond. The sensitivity of the integrity to municipal bond coupon rate is stronger before 2007-2008 financial crisis, when the coupon rate was higher, than after the crisis. Overall, our results imply that local governments could save financing cost by improving the integrity of the governments.
Research Article|
November 30 2015
The Integrity Effect on Municipal Bonds
Hyungsang Song;
Hyungsang Song
Center for KOGAS Economics and Management
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Joonhee Rhee
Joonhee Rhee
Soongsil University
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Publisher: Emerald Publishing on behalf of Korea Derivatives Association
Online ISSN: 2713-6647
Print ISSN: 1229-988X
© 2015 Emerald Publishing Limited
2015
This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode
Journal of Derivatives and Quantitative Studies: Seonmul yeon’gu (2015) 23 (4): 597–619.
Citation
Song H, Rhee J (2015), "The Integrity Effect on Municipal Bonds". Journal of Derivatives and Quantitative Studies: Seonmul yeon’gu, Vol. 23 No. 4 pp. 597–619, doi: https://doi.org/10.1108/JDQS-04-2015-B0005
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