Publications
Publications
- 2022
Calling All Issuers: The Market for Debt Monitoring
By: Huaizhi Chen, Lauren Cohen and Weiling Liu
Abstract
A substantial fraction of local governments refinance their long-term debt with significant delays—resulting in sizable losses. Using data from 2001 to 2018, we estimate that U.S. municipals lost over $31 billion from this delayed refinancing, whereas the entire U.S. corporate sector, facing the same low interest-rate environment, lost only a comparatively modest $1.4 billion. We present evidence that these delays are related to gaps in localized debt monitoring. For instance, when a bond’s call option unlocks in a month that is the fiscal year-end of a local government—a particularly busy time for finance departments—the decision to call is delayed significantly longer. A significantly longer delay also occurs when a municipality is faced with a wave of calls all due at once. These effects are magnified in smaller municipalities, with fewer finance staff. In addition, the market for outside monitoring (e.g., underwriters), is a fractured one. It is characterized by extreme stickiness: 87% of a municipality’s bonds are issued with the same underwriter over our sample period. Moreover, the usage of a less locally-focused underwriter is associated with significantly greater delays.
Keywords
Debt Monitoring; Financial Institutions; Governing Rules, Regulations, and Reforms; Government Administration; Financing and Loans
Citation
Chen, Huaizhi, Lauren Cohen, and Weiling Liu. "Calling All Issuers: The Market for Debt Monitoring." NBER Working Paper Series, No. 29790, February 2022.