Earl D. Benson

Pricing Residential Amenities: The Value of a View

This study provides estimates of the value of the view amenity in single-family residential real estate markets. A focus on Bellingham, Washington, a city with a variety of views, including ocean, lake, and mountain, allows for differentiation of the view amenity by both type and quality. Results from a hedonic model estimated for several recent years suggest that depending on the particular view, willingness to pay for this amenity is quite high. The highest-quality ocean views are found to increase the market price of an otherwise comparable home by almost 60%; the lowest-quality ocean views are found to add about 8%. For ocean views of all quality levels, the value of a view is found to vary inversely with distance from the water.

Environmental Hazards and Residential Property Values: Evidence from a Major Pipeline Event

This study uses a hedonic price model to estimate the effect of proximity to a major fuel pipeline on housing prices, both before and after a high-profile accident. Using data for Bellingham, Washington, the site of a 1999 rupture and explosion, we find no significant effect of proximity to the pipeline prior to the accident. Following the accident, we find a substantial price effect; however, the effect decays rapidly with distance from the pipeline and also diminishes over time. Results suggest that for this type of environmental hazard, an adverse event leads to an increase in perceived risk. (JEL Q53, R31)

The Effect of Voluntary GAAP Compliance and Financial Disclosure on Governmental Borrowing Costs

State and local governments are not subject to Securities and Exchange Commission (SEC) regulations requiring compliance with generally accepted accounting principles (GAAP). It was only in 1980 that Standard & Poors issued a policy statement indicating a failure to conform with GAAP would be considered a negative factor in establishing municipal bond ratings. Until May 1986, governmental GAAP was not even enforceable under Rule 203 of the AICPA code of ethics. While some state governments regulate the accounting practices of their local governments, the states themselves are exempt from all accounting regulations. In this unregulated environment, differential levels of financial disclosure by the states are observed. Differential disclosure is presumably the outcome of an economic decision based on the conventional equalization of the marginal costs and benefits of GAAP compliance. In this paper, we try to estimate the magnitude of one potential benefit accruing from differential GAAP compliance—the interest cost savings on general obligation bonds. Our study suggests the bond markets are “informationally efficient” in the sense that bond prices incorporate the effects of differential GAAP compliance.

State regulation of accounting practices and municipal borrowing costs

This article examines the association between state regulation of accounting practices and municipal borrowing costs. The results demonstrate that stringent accounting regulations do have an effect on borrowing costs after abstracting the effect of other explanatory variables. The direction of the observed effect is difficult to assess due to presence of multicollinearity in the model. However, lower borrowing costs are suggested by the analysis.

Structural Deficits and State Borrowing Costs

This study examines the factors that affect the borrowing costs of state governments with specific attention being paid to the impact of state structural deficits (or fiscal imbalances) on borrowing costs. The findings for 1999-2000 suggest that interest costs for state competitively sold municipal securities reflect estimates of state structural deficits. States with a higher structural deficit were found to pay significantly higher interest costs. The evidence implies that bond ratings do not fully reflect the fiscal problems faced by state governments.

Tax Effort as an Indicator of Fiscal Stress

The most visible credit market measure of the fiscal health of a municipality is the credit rating. In this article we ask whether the credit rating fully incorporates the fiscal stresses faced by municipal governments. We utilize state “tax effort” as a measure of the fiscal stress faced by a municipality. The findings suggest that municipalities located in states characterized by poor fiscal health pay higher than average interest costs on their bond issues (holding credit rating constant). State “tax effort” seems to reflect elements of fiscal stress that are not adequately taken into account through the rating process.

The Influence of Accounting Information Disclosed under GASB Statement No. 34 on Municipal Bond Insurance Premiums and Credit Ratings

This paper examines the impact of accounting information on first the cost of municipal bond insurance and secondly on the credit rating awarded on municipal debt, using data disclosed under Statement No. 34 of the Governmental Accounting Standards Board (GASB 34) for insured general obligation debt issued by Texas cities. It finds that both governmental fund and government‐wide financial information is related to the cost of municipal bond insurance and the credit rating on municipal debt. The paper also shows that the utilization of accounting information by bond insurers is not identical to its use by a bond rating agency.

Stock Return Expectations and P/E10

Benson, Bortner, and Kong estimate the return on equities using the matrix approach suggested by Bogle in 1991. In addition to Bogle’s approach, the authors incorporate share repurchases as suggested by Grinold and Kroner in 2002 and by Shiller’s P/E10.They demonstrate that this relatively simple approach provides reasonable estimates of subsequent 10-year returns for the S&P 500 Index. The authors also focus on the relationship between the P/E10 ratio and the market’s subsequent return. The authors demonstrate that when P/E10 is at low (high) levels in its historic range, the subsequent average 10-year market returns are relatively high (low or negative). When subsequent 3- and 5-year returns are examined, the relationship between P/E10 and subsequent average annual returns is even stronger. Finally, the authors’ analysis suggests that the demonstrated approach may be used to estimate returns for various market sectors or indices by applying the approach to estimating the returns on three Russell indices.

Dueling Revenue Caps and Municipal Bond Yields: The Case of Houston, Texas

Two competing revenue cap proposals, one from a citizens group and the other proposed by the mayor, were on the November 2004, election ballot of the City of Houston, Texas. Both propositions passed, yet the citizens group had to sue to have their initiative enforced. This study examines the effect on Houston bond yields of the series of events (from June 2004 through March 2006) surrounding these dueling revenue cap propositions. The empirical findings suggest that the budget-related events can have a significant effect on yields demanded by investors in the secondary market for outstanding uninsured tax-exempt general obligation debt.

Commission-motivated trading patterns of brokers across the production month

Abstract The intramonth pattern of broker commission earnings is examined/or a sample of one hundred brokers from a national brokerage firm. It is hypothesized that the structure of broker commissions leads to distortions in trading. The evidence shows that in the last five days of the production month, more than one-fourth of the brokers earned a significantly higher proportion of their monthly commissions than would be expected if trading were uniform across the month. This suggests that the structure of the commission system may lead some brokers to encourage individual investors to unnecessarily trade securities near the end of the production month to boost their commission income.