Issuer sophistication and underpricing in the negotiated municipal bond market

Research on municipal bond offerings has established the determinants of effective competitive bidding, but no comparable research has been undertaken for the negotiated method. This study examines the effect of issuer sophistication on the interest costs for a sample of negotiated issues. The first part of the paper reviews the theory relating issuer sophistication, negotiated issues, and underpricing. The second part presents statistical evidence supporting the theory that the net interest cost of a sample of negotiated issues declines as issuer sophistication increases.