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Does the Quality of Financial Advice Affect Prices?

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  • Arthur Allen
  • Donna Dudney

Abstract

Using a large data sample of 58,562 new municipal issues covering the period from 1984 to 2002, we examine whether the quality of advice provided by a financial advisor affects new issue interest costs. We find that higher-quality financial advisors are associated with statistically significant decreases in new issue yields. The effect of advisor quality on yields is more pronounced for revenue, negotiated, and opaque bond issues than for general obligation and competitively sold issues. However, issuers of revenue or negotiated bonds are more likely to choose a low-quality advisor. Copyright (c) 2010, The Eastern Finance Association.

Suggested Citation

  • Arthur Allen & Donna Dudney, 2010. "Does the Quality of Financial Advice Affect Prices?," The Financial Review, Eastern Finance Association, vol. 45(2), pages 387-414, May.
  • Handle: RePEc:bla:finrev:v:45:y:2010:i:2:p:387-414
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    Cited by:

    1. Menkhoff, Lukas & Schmeling, Maik & Schmidt, Ulrich, 2013. "Overconfidence, experience, and professionalism: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 86(C), pages 92-101.
    2. Tima T. Moldogaziev & Martin J. Luby, 2016. "Too Close for Comfort: Does the Intensity of Municipal Advisor and Underwriter Relationship Impact Borrowing Costs?," Public Budgeting & Finance, Wiley Blackwell, vol. 36(3), pages 69-93, September.

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