Explains the rating system for US municipal bonds and its effect on borrowing costs, reviews relevant research and provides a study of the factors affecting grading by rating agencies in Virginia using 1995 data. Explains the methodology and presents the results, which identify five significant determinants of favourable ratings. Shows that net interest costs are lower when other rates of interest are low, real estate taxes are high (though not excessive), total municipal debt levels are low and credit risks are low. Confirms that bond ratings capture additional information and that a drop in ratings will raise net interest costs substantially. Considers consistency with other research and the implications of the findings for participants in the municipal bond market.
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1 April 2002
Literature Review|
April 01 2002
An empirical analysis of net interest cost, the probability of default and the credit risk premium: a case study using the Commonwealth of Virginia
Yaw A. Badu;
Yaw A. Badu
Associate Dean & Professor, Delaware State University
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Kenneth N. Daniels;
Kenneth N. Daniels
Associate Professor of Finance, Virginia Commonwealth University
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Francis Amagoh
Francis Amagoh
Center for Public Policy, Virginia Commonwealth University
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Publisher: Emerald Publishing
Online ISSN: 1758-7743
Print ISSN: 0307-4358
© MCB UP Limited
2002
Managerial Finance (2002) 28 (4): 31–47.
Citation
Badu YA, Daniels KN, Amagoh F (2002), "An empirical analysis of net interest cost, the probability of default and the credit risk premium: a case study using the Commonwealth of Virginia". Managerial Finance, Vol. 28 No. 4 pp. 31–47, doi: https://doi.org/10.1108/03074350210767816
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