Fiduciary Duty in the Municipal Bonds Market
Year: 2024
Type: article
Abstract: I examine whether the imposition of fiduciary duty on municipal advisors affects bond yields and advising fees. Using a difference-indifferences analysis, I show that bond yields reduce by ∼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.
Source: Municipal Finance Journal
DOI: 10.1086/738349
Author: Baridhi Malakar
Institution: Georgia Institute of Technology
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W4381111155