Studies Pertaining to Competitive and Negotiated Bond Sales

By: Joy A Howard
      November 2013

The following is intended to be a comprehensive list of studies relating to competitive and negotiated sales of municipal bonds.  The list excludes studies completed prior to 1970 (due to changes in the marketplace), studies or reports that do not include an analytical analysis, and studies or reports performed or commissioned by underwriters or financial advisors that had a financial interest in the issues being analyzed.

As noted below, only one analytical study has ever been completed suggesting that negotiated sales have lower total interest costs than competitive sales.

Study that Negotiated Sales Result in Lower Costs

Kenneth Kriz, 2003, Quarterly Review of Economics and Finance, Vol. 43, "Comparative cost of negotiated versus competitive bond sales: new evidence from state general obligation bonds." (Study of 521 State general obligation issues found that for a sample of state general obligation bonds, "negotiated offerings have at worst no higher and perhaps lower interest costs.")

Studies that Competitive and Negotiated Sales have Similar Cost

Paul A. Leonard, 1996, Municipal Finance Journal, Vol. 17, "An Empirical Analysis of Competitive Bid and Negotiated Offerings of Municipal Bonds" (Based on 2,333 issues sold in 1992, study found that reoffering yields on negotiated and competitive offerings were not different.) 

Glenn L. Stevens and R. Patrick Wood, 1998, Journal of Public Budgeting, Accounting & Financial Management, "Comparative Financing Costs for Competitive and Negotiated Pennsylvania School District Bonds" (Study of 177 issues sold in 1993 found that there was no difference in total interest costs for competitive and negotiated sales.) 

Jun Peng and Peter F Brucato, Jr., 2001, Municipal Finance Journal, "Do Competitive-Only Laws Have an Impact on the Borrowing Cost of Municipal Bonds?" (Study of 530 general obligation issues sold in 1998 that had a par amount greater than $5 million found the cost of issues sold by negotiation and by competitive bid to be similar.)

Studies that Competition Results in Lower Costs

Reuben Kessel, 1971, The Journal of Political Economy, Vol. 79, "A Study of the Effects of Competition in the Tax-Exempt Bond Market" (Study of 6,503 issues found that more bids result in lower underwriting spread and lower yields.")

Earl D. Benson, 1979, The Journal of Finance, Vol. 34, "The Search for Information by Underwriters and its Impact on Municipal Interest Cost" (Study found that more bids result in lower interest costs.)

Michael Joehnk and David Kidwell, 1979,  The Journal of Finance, Vol. 34, "Comparative Costs of Competitive and Negotiated Underwritings in the State and Local Bond Market" (Study of paired data consisting of 404 pairs of general obligation bonds and 330 pairs of revenue bonds found that competitive sales reduce costs by 23 to 27 basis points compared to negotiated sales.)

Ronald Forbes and John Petersen, 1979, Government Finance Research Center, Municipal Finance Officers Association, "Local Government General Obligation Bond Sales in Pennsylvania: The cost Implications of Negotiation vs. Competitive Bidding" (Study found that yields were 28.7 basis points higher for negotiated sales.)

Eric Sorensen, 1979, Journal of Money, Credit and Banking, Vol. 11,  "Negotiated Municipal Bond Underwritings: Implications for Efficiency" (Study found lower costs for competitive issues if there are two or more bids. With 3 or more bids savings from competitive sales ranged from 26.5 to 40.2 basis points.)

Michael Joehnk and David Kidwell, 1980,  Public Administration Review, Vol. 40, "A Look At Competitive and Negotiated Underwriting Costs in the Municipal Bond Market" (Study found that competitive sales reduced interest cost by 15 basis points for general obligation bonds and by 35 basis points for revenue bonds.)

 Ronald C. Braswell, Joe Nosari, and DeWitt L. Summer, 1983, Journal of Money, Credit and Banking, Vol. 15,  "A Comparison of True Interest Costs of Competitive and Negotiated Underwritings in the Municipal Bond Market"  (Study of Florida issues found 18 basis points lower for competitively bid bonds.)

Michael Joehnk and David Kidwell, 1984,  Financial Management, Vol. 13, "The Impact of Market Uncertainty on Municipal Bond Underwriter Spread" (Study found that spreads on competitively bid bonds is lower than negotiated issues provided that 2 or more bids are received.)

Robert L. Bland – 1985, Public Administration Review, Vol. 45,  "The Interest Cost Savings from Experience in the Municipal Bond Market" (Inexperienced issuers that sell bonds by negotiation pay a high cost and should sell competitively.  Issuers that have had experience in negotiation - four or more issues - may obtain interest costs no higher than competitively sold issues.)

Judy E. Maese, 1985, Financial Management, Vol. 14, "Competitive Versus Negotiated Municipal Revenue Bond Issues: An Investigation of Underpricing" (Study found that net interest cost for competitive issues were 60 to 77 basis points less than negotiated sales.)

GFOA Research Center, 1993 "Study of Tax-exempt Bond Issues 1986-1992" (Study for the City of Pittsburgh found competitive bond sales to be less expensive.)

Office of Margaret Kelly, CPA, Missouri State Auditor, 1995 "Special Review of Bonds Issued by Political Subdivisions" (Survey of 2,857 Missouri political subdivision found that interest costs were lower for competitively sold issues.) [View Study]

Kathy Engebretson, 1996, University of Pennsylvania dissertation, "The Political Economy of Competitive and Negotiated Sales in the Municipal Bond Market" (Study of bonds in 41 large U.S. cities between the years of 1980 and 1993 found that negotiated sales resulted in net interest cost as much as 48 basis points higher than competitive sales. The study also explored the political circumstances in which negotiated sales were selected.)

William Simonsen and Mark D. Robins, 1996, Public Administration Review, Vol. 56 "Does it make any difference anymore? Competitive versus negotiated municipal bond issuance"  (Study pertaining to Oregon found 29 basis points savings with competitive bidding and greater savings with more bids.)

Wisconsin Legislative Audit Bureau, 1997, Bureau prepared a study of State bonds sold between 1994 and 1997 at the direction of State lawmakers who expressed concern regarding the number of bonds sold by negotiation.  (Study found that three evaluation sheets of negotiated sales were unexpectedly missing.  Of the evaluation sheets that were available, the competitively sold bonds had underwriting spreads $2.60 per $1,000 less than the negotiated issues.)

Paul Leonard, Municipal Finance Journal, Winter 1999.  "Competitive Bidding for Municipal Bonds:  New Tests of the Underwriter Search Hypothesis" (Study of 937 issues sold in 1992 could not conclude that all issues benefit from competitive bid but some do and for competitively bid bonds, the greater the number of bids the lower the cost.)

Alec Gershberg, Michael Grossman and Fred Goldman, 1999, National Bureau of Economic Research, "Competition and the Cost of Capital Revisited: Special Authorities and Underwriters in the Market for Tax-exempt Hospital Bonds" (Although 94% of hospital bonds issued by State authorities are sold though negotiation,  hospital bonds sold through auctions yielded half a percentage point below those sold without public bidding.)

Office of Claire McCaskill, Missouri State Auditor, 2001 "Audit of General Obligation Bond Sale Practices" (Study found that interest costs were 38 basis points lower for competitively sold issues.)  [View Study]

William Simonsen, Mark Robbins and Lee Helgerson, 2001, "The Influence of Jurisdiction Size and Sale Type on Municipal Bond Interest Rates: An Empirical Analysis" (Study of  municipal bond sales in Oregon from 1994 to 1997 found 17 basis point reduction for competitive sales and the savings were higher with 4 or more bids)

Mark Robbins, 2002, Public Budgeting & Finance/Summer 2002, "Testing the Effects of Sale Method Restrictions in Municipal Bond Issuance:  The Case of New Jersey" (Study of revenue bonds found 35 basis point savings with competitive sales.) [View Study]

Jun Peng and Peter F Brucato, 2003, Public Budgeting and Finance, "Another Look at the Effect of Method of Sale on the Interest Cost in the Municipal Bond Market – A Certification Model" (The study hypothesis was that if issuers do not have "information asymmetry" neither sale method would have a cost advantage; however, the study found that there were true interest cost savings for competitively sold issues ranging from 5 basis points, for high credit bonds, to as much as 40 basis points.)

Office of Claire McCaskill, Missouri State Auditor, 2005 "General Obligation Bond Sale Practices Follow Up" (Study found that interest costs were 19 basis points lower for competitively sold issues.) [View Study]

Mark D. Robbins and Bill Simonsen, 2007, "Competition and Selection in Municipal Bond Sales: Evidence from Missouri" (Study reanalyzed the data from the Missouri State Auditor’s 2005 study using Ordinary Least Squares Regression with selection correction and found that interest costs were19 basis points lower for competitively sold issues after taking into account the cost of financial advisor services.)

Office of Thomas A. Schweich, Missouri State Auditor, 2013 "General Obligation Bonds Sales Practices" (Study found that competitive sales result in 23.5 to 24.2 lower basis points than for a negotiated sale.) [View Study]

Note:   This listing is intended to be comprehensive.  Any study excluded, except as noted in the introduction, is unintentional. Additional studies, if found, may be provided to Ms. Howard for inclusion in this list.



About WMFS







Site Map


WM Financial Strategies
11710 Administration Drive
Suite 7
St. Louis, Missouri 63146
Phone (314) 423-2122
Fax (314) 432-2393