The Quality of Advice: The Case of Financial Advisors

Using a large data sample of 33,469 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 more reputable financial advisors are associated with statistically significant decreases in new issue yields. We argue that in the municipal debt market, price certification signals from financial advisors have minimal value to investors and therefore attribute these reputational effects primarily to the quality of the financial advice provided. We interpret our evidence as supportive of the quality of advice affecting yields rather than yields being affected by a signal about issuer quality. Another measure of the quality of advice is continuing relationships between the financial advisor and the issuer. We find that continuing relationships are also associated with reduced interest costs. The effect of advisor quality on yields is especially pronounced for more complex issues (negotiated and revenue bonds)

Presentation Information
Paper Title: The Quality of Advice: The Case of Financial Advisors
Conference: American Accounting Association's Governmental and Nonprofit mid-year section meeting
Author(s): Allen, Arthur C;  Dudney, Donna
Researcher Information
Allen, Arthur C
Allen, Arthur C
Associate Professor
  • Financial Accounting
  • Governmental and Nonprofit Accounting
HLH 445 J
P.O. Box 880488
University of Nebraska-Lincoln
Lincoln, NE 68588-0488, USA
Phone: (402) 472-3275
Fax: (402) 472-4100
Dudney, Donna
Dudney, Donna
Associate Dean of Undergraduate Curriculum and Programs
  • Financial Institutions
  • Financial Markets & Investing
  • Managerial Economics
Office of the Dean
HLH 301 G
P.O. Box 880405
University of Nebraska-Lincoln
Lincoln, NE 68588-0405, USA
Phone: (402) 472-5695
Fax: (402) 472-5180