Tax-Subsidized Underpricing: Issuers and Underwriters in the Market for Build America Bonds

摘要: Build America Bonds (BABs) were issued by states and municipalities for twenty months as an alternative to tax-exempt bonds. The program was part of the 2009 fi scal stimulus package. bonds are taxable holder, but federal Treasury rebates 35% coupon payment issuer. stated purpose provide municipal issuers with access a more liquid market making them attractive foreign, tax-exempt, tax-deferred investors. We evaluate one aspect liquidity bonds|the underpricing when issued. show that structure rebate creates additional incentives underprice they issued, is larger BABs than traditional municipals, controlling characteristics such size issue or trade. This suggests not liquid, contrary program, underwriters strategically increase tax subsidy, both. Several findings point strategic underpricing. There negative correlation between underwriter's spread quite evident institutional interdealer trades, while tax-exempts primarily smaller sales customers. Counterfactuals our estimated structural model also suggest