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Does the charter form lead to lower borrowing costs? Examining the case of California local governments

Authors
Kim, JunghackMcDonald, Bruce D., IIIShon, Jongmin
Issue Date
2022
Publisher
WILEY
Keywords
Borrowing Costs; Form of Government; Municipal Bonds
Citation
ANNALS OF PUBLIC AND COOPERATIVE ECONOMICS, v.93, no.1, pp.85 - 102
Indexed
SSCI
SCOPUS
Journal Title
ANNALS OF PUBLIC AND COOPERATIVE ECONOMICS
Volume
93
Number
1
Start Page
85
End Page
102
URI
https://scholar.korea.ac.kr/handle/2021.sw.korea/138775
DOI
10.1111/apce.12320
ISSN
1370-4788
Abstract
In this paper, we examine the impact of the charter form of government on the borrowing costs of local governments. A substantial amount of research has been undertaken to date in which scholars have investigated the determinants of borrowing costs for governments. However, little research has been conducted hitherto on the impact that the particular form of government - a key issuer characteristic - has on determining its specific borrowing costs. We hypothesized that a chartered government is more likely to be able to reduce its borrowing costs when it is benefiting from the municipal bond market; a government's flexibility and professionalism is desirable. We tested this hypothesis by using city and county government bond data from California that dates from 2003 to 2015. In our findings, we show that the financial flexibility that is afforded by a charter helps local governments to improve their credit ratings and to lower their borrowing costs.
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