Abstract
"Municipal bonds are widely issued by local municipalities as a feasible financial alternative to fund infrastructure projects. On the other side, from the investors’ perspective, bonds issued by municipalities have historically been a popular investment option due to often favorable tax treatment for investors as well as the issuer’s credibility and generally high credit quality of the market. The paper explores the factors that influence the size and interest rates of Romanian municipal bonds for a 20 years period starting from 2001, when the first issuance took place, to the present. The data collected were analyzed through multiple linear regressions using ordinary least square estimator. The results revealed that municipalities with large populations, higher levels of income and expenses, and longer maturity tended to issue more municipal bonds. On the other hand, the unemployment and inflation rates increased the interest rates. The regions, fund destinations, and political variables also influenced the levels of bonds issued as well as the interest rates. These findings illustrated the importance of the context at local and national level, expressed by different social, economic and political variables that local governments should consider when issuing municipal bonds. The study contributes to the development of knowledge in the area of issuer’s characteristics and, moreover, the political, economic, and financial setting influences on the municipal bond market in an emergent country from Eastern Europe, Romania."
Highlights
The 2008 financial crisis led to various unfortunate consequences, including bursting the housing bubble, a deep recession, high unemployment rates, and adverse effects on financial stability worldwide
The study contributes to the development of knowledge in the area of issuer’s characteristics and, the political, economic, and financial setting influences on the municipal bond market in an emergent country from Eastern Europe, Romania
The main findings of our study revealed that the Romanian municipal bond market is still underdeveloped
Summary
The 2008 financial crisis led to various unfortunate consequences, including bursting the housing bubble, a deep recession, high unemployment rates, and adverse effects on financial stability worldwide These circumstances made it difficult for local governments to raise funds, so the public sector became increasingly concerned by the problem of local debt. The combination of slow revenue growth and expenditure restrictions intensified the pressure on local governments (Chen et al, 2016) and forced them to find new tools to address this financial scenario (Balaguer-Coll, Prior and Tortosa-Ausina, 2016) In this context, the issuance of bonds became an alternative means of funding the investment projects proposed by local governments. The third section describes the research design and methodology, whereas the fourth section presents the descriptive and empirical results and is followed by the conclusions, limits and further developments section
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