AN ANALYSIS OF OFFERING METHODS OF PUBLIC UTILITY BONDS AND PREFERRED STOCK
The purpose of this investigation was to study the impact of the offering method, competitive bidding or negotiation, on new issues of public utility bonds and preferred stock. More specifically, this was accomplished by doing an in-depth analysis of the determinants of the total cost of new public utility bonds and preferred stock. The theoretical model focuses on the characteristics of the individual new security issues. The techniques of regression analysis and first order statistics were utilized. The study focused on new public utility bond and preferred stock issues sold between January 1, 1977 and December 31, 1983. The total cost of a new bond or preferred stock issue depends on the characteristics of the specific issue such as call protection, quality rating and term to maturity. The market environment, general level of interest rates and the degree of uncertainty present in the financial markets, must also be reflected. The interaction of these variables and the selection of the offering method determines the total cost of the new security issue. Examination of the regression results as well as various descriptive statistics obtained from the data suggest several conclusions. First, the total cost of a new public utility bond would be 22 basis points lower if it was offered via competitive bidding. The submission of at least two competitive bids for a new bond issue will further lower the total cost. However, the submission of three bids will not result in additional cost savings. Second, during periods of uncertainty in the marketplace competitive bidding does not offer any measurable cost advantage. If two or more bids are submitted for a new bond issue, competitive bidding does have a slight cost advantage over negotiation. The presence of uncertainty diminishes the value of competitive bidding. Third, competitive bidding is the lower cost offering method for new issues of preferred stock only when two or more competitive bids are submitted and if the marketplace is stable. The presence of uncertainty overrides the impact of competitive bidding.
MORAN, EILEEN ANNE, "AN ANALYSIS OF OFFERING METHODS OF PUBLIC UTILITY BONDS AND PREFERRED STOCK" (1986). ETD Collection for Fordham University. AAI8615737.