The Municipal Bond Market in Italy: an empirical analysis of the determinants of yields and credit ratings

摘要

This PhD thesis investigates the sub-sovereign financial market in Italy,udspecifically focusing on the municipal bond market and on local governmentudcredit ratings. This research aims to identify empirically the economic andudfinancial variables which affect bond yields and credit ratings of Italian localudgovernments, and to understand the role of such variables in explaining theuddifferences in interest costs paid by different bond issuers (or paid by the sameudissuer at different times) and the differences in the rating judgments assignedudby the major international rating agencies.udThe Italian local government finance system is characterized by the severaludtiers of sub-sovereign governments (regions, provinces and cities) beinguddifferently linked to the central government finances, and by the centraludgovernment itself conveying a non-negligible sovereign financial risk. The threeudlocal government tiers have a different institutional nature, while cities andudprovinces (jointly defined as local authorities) possess a similar status and areudsubject to the same legislation, regions are characterized by a greaterudindependence and by a significantly higher degree of financial autonomy. Theseudfacts should affect the investors’ evaluation of local government credit risk and,udtherefore, one of the aims of this research is to analyze the determinants of subsovereignudbond yields and credit ratings in this institutional framework.udCredit ratings are investigated under a dual perspective, beyond the analysis onudthe factors driving the determination of credit ratings, this research also aims toudstudy the role played by ratings in affecting local bond yields. First, testing if theudpurchase of a rating is rewarded by lower yields, i.e. if rated issuers pay lowerudyields than their unrated peers, and then if the specific creditworthinessudassessment assigned by rating agencies is considered by investors when theyudprice a municipal bond, i.e. if a AAA-rated issuer pays less than a BBB-ratedudone.udThis work is organized in two parts. Part I provides the research framework,udrationale and background, including the research planning, a description of theudlocal government finance system in Italy and the review of the literature. Part IIudis dedicated to the empirical analysis, presenting the empirical methodology and results.