Self-selection bias or decision inertia? Explaining the municipal bond “competitive sale dilemma”

Datos Bibliográficos

ID20201239
AutoresGao Liu (0000-0001-6886-0507, Florida Atlantic University, autor de correspondencia)
Año2018
Volumen30
Número1
Páginas86-106
Fecha de publicación2018-03-05
Peer ReviewedSí
Open AccessSí
TipoARTICLE
RevistaJournal of Public Budgeting Accounting & Financial Management (JOURNAL)
Identificadores de la revistaISSN: 1096-3367 • E-ISSN: 1945-1814
EditorialEmerald (PUBLISHER)
DOI10.1108/jpbafm-03-2018-008
OpenAlexW2771247271
IdiomaEN
Citas recibidas3
Referencias citadas36

Purpose Although most empirical studies find that competitive bidding can reduce the interest cost, the municipal bond primary market is dominated by negotiating offerings. The purpose of this paper is to investigate this dilemma by empirically testing two hypotheses: self-selection bias and decision inertia hypotheses. Design/methodology/approach Logistic regressions and Heckman procedures are used to examine data from the California municipal bond primary market. Findings The paper finds that while information asymmetry does affect the selection of underwriting approach, self-selection bias cannot explain the cost difference between the two sale approaches. On the other hand, decision inertia has the highest explanatory power in the selection of sale approaches. Originality/value This paper provides a new explanation for the “competitive sale dilemma” from the perspective of decision inertia. The authors document that state and local governments show a greater propensity of adhering to previous choices, particularly in a context in which the outcome is uncertain or actors have little knowledge in comparing the outcome of the alternatives

Actuarial science · Bidding · Dilemma · Economics · Microeconomics · Economic and Environmental Valuation · Fiscal Policy and Economic Growth · Housing Market and Economics