Publication:
Capital Structure and Performance Implications of Special-Purpose Governments

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Authors
Eger, Robert J. III
Hermis, Judith M.
Subjects
Financial management
capital structure
special purpose entities
fiscal federalism.
Advisors
Date of Issue
2019-10
Date
2019-10
Publisher
Language
Abstract
We study the capital structure choices and resultant operating consequences of American special-purpose governments. In the United States, special-purpose governments have approximately $1 trillion of outstanding debt. These entities are established with Congressional authorization, rendering taxpaers ultimately responsible for satisfying their obligations. However, their debt is not recorded on any local, state, or Federal financial statements. Despite the enormity of these quasi-governmental units and the implications of their operating choices on the country’s fiscal health, surprisingly little is known about their underlying decisions and attendant consequences. This dearth of knowledge motivates our study. We find that special-purpose governments follow a modified pecking-order theory of capital structure, first exhausting internal funding before issuing debt. These units then use an equity-like instrument to fund investment. Moreover, their capital structure is associated with operating outcomes, providing evidence that the financing decisions of these entities have operational consequences of import for the country’s fiscal position.
Type
Conference Paper
Description
Series/Report No
Department
Organization
Naval Postgraduate School (U.S.)
Identifiers
NPS Report Number
Sponsors
Funder
Format
32 p.
Citation
Distribution Statement
Rights
This publication is a work of the U.S. Government as defined in Title 17, United States Code, Section 101. Copyright protection is not available for this work in the United States.
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