Jayaraman Vijayakumar

Debt Maturity, Credit Risk and Information Asymmetry: The Case of Municipal Bonds

Using a system of equations approach, this paper empirically tests the impact of credit quality, asset maturity, and other issuer and issue characteristics on the maturity of municipal bonds. We find that under conditions of lower information asymmetry that prevails in the municipal sector, higher-rated bonds have longer maturities than low-rated bonds. This result differs from that observed in the corporate sector. Overall, our results support the asset maturity hypothesis. In addition, our analysis finds that fundamentals matter. Issue features that provide additional protection or convenience to the investor tend to increase debt maturity.

Foreign Direct Investment and Evaluation of Country Risk: an Empirical Investigation

This paper investigates the extent to which country risk ratings influence the inflow of foreign direct investment (FDI). Using International Monetary Fund (IMF) data from over 100 countries and Euromoney’s country risk ratings over a ten‐year period, this study finds that country risk ratings have a significant influence on FDI. This effect is stronger for US FDI. We also analyze the relative importance of the individual components of the country risk index.

The Competitive Impact of Commercial Bank Underwriting on the Market for Municipal Revenue Bonds

This paper examines the impact of commercial bank entry in the market for municipal revenue bonds. We show that issues underwritten by commercial banks have lower underwriter spreads but not lower yields relative to issues underwritten by nonbank investment firms. In particular, this is more significant for non-investment-grade bonds underwritten by commercial banks. Our results are consistent with the interpretation that bank entry has resulted in increased competition in the municipal revenue bond market and that the lower yields observed for bank-underwritten commercial bonds may be due to banks having private information. Overall, our results suggest that policy changes leading to the relaxation of restrictive provisions concerning bank underwriting of municipal revenue bonds have had beneficial effects.

Returns to Trading Strategies Based on Price-to-Earnings and Price-to-Sales Ratios

We examine returns to trading strategies based on values of the Price-to-Earnings (P/E) and Price-to-Sales (P/S) ratios. We show that the excess returns to trading strategies based on the P/S ratio is significantly higher than those for the more commonly used P/E ratio. We also show that using a combination of both the P/S and P/E ratios provides excess returns higher than strategies using these ratios individually. These results are robust across exchange listings and firm size. Finally, we document superior excess returns using a trading strategy based on the tendency of certain industries to have low or high P/E and P/S ratios.

Differential Volume and Price Reactions to Loss Announcements and the Association With Loss Reversals

We examine differential volume–price reactions to loss announcements and their association with loss reversals. Our findings show that differential volume–price reactions are dissimilar between firms reporting profits and losses. In addition, the differential volume–price reactions surrounding loss announcements are useful in predicting loss reversals. When jointly considered, volume and price reactions provide unique information about future profitability for firms currently reporting losses. Overall, our results are consistent with losses generating more investor disagreements and more trading volume and show that a measure based on differential volume–price reactions to loss announcements is informative with regard to predicting subsequent loss reversals.

Build America Bonds: An Empirical Analysis of Characteristics and Issuer Benefits

We provide a comprehensive empirical analysis of the Build America Bonds (BABs) program. We show that the program benefits issuers in the form of lower yields relative to tax-exempt municipal debt for both general obligation and revenue issues. Our analysis suggests no differences in underwriter gross spreads for BABs issues at issuance relative to tax-exempt debt, and that issuance of BABs did not significantly affect prices of other tax-exempt bonds of the BABs issuers. Our analysis also examines characteristics of BABs issuers and factors influencing yields and gross spreads, and suggests that the BABs program was effective in achieving its objectives.

CORRUPTION AND TAXATION: LESSONS FROM THE INDIAN EXPERIENCE

This paper examines the results of a series of steps taken by the Customs and Excise Department, Government of India, to reduce corruption and prevent leakages of revenue in customs and excise tax collection and administration. We examine the effectiveness of reward programs and a series of liberalization measures attempted by the department for these purposes. Our study suggests that in the absence of a proper framework for rewards administration, incentive plans do not succeed. On the contrary, the Indian experience suggests that liberalization and simplification of laws and procedures coupled with proper control mechanisms such as professionalized audits work better to reduce corruption and enhance revenue collection.