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Private Information in Bank Certification:Evidence from U.S. and Non-U.S. Bank Standby Letters of Credit

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  • Roger D. Stover

    (Iowa State University, U.S.A.)

  • Mark F. Schmitz

    (Rutgers University, U.S.A.)

Abstract

This article inquires into the factors that affect the pricing of new issues of corporate tax-exempt bonds backed by standby letter of credit of U.S. and foreign commercial banks. Previous literature suggests that U.S. banks possess superior certifying ability in this market due to their unique access to low-cost private information. This article also examines the extent to which such information is priced by the market. The results indicate that pricing of these bonds depends primarily on the quality of the commercial bank issuing the standby letter of credit irrespective of where the bank is domiciled. The quality influence on yield occurs indirectly through its significant effect on the issue’s bond rating

Suggested Citation

  • Roger D. Stover & Mark F. Schmitz, 1997. "Private Information in Bank Certification:Evidence from U.S. and Non-U.S. Bank Standby Letters of Credit," Multinational Finance Journal, Multinational Finance Journal, vol. 1(4), pages 309-324, December.
    • Handle: RePEc:mfj:journl:v:1:y:1997:i:4:p:309-324
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    References listed on IDEAS

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    More about this item

    Keywords

    bank certification; industrial revenue bond financing; Moody?s bond rating; standby letter of credit;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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