Financial Engineering by City Governments: Factors Associated with the Use of Debt-Related Derivatives

Akheil Singla, Martin J. Luby

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

Despite significant coverage in the financial press in recent years, financial engineering by city governments via the use of financial derivatives such as interest rate swaps remain an understudied area of urban financial policy. Indeed, press accounts and other case or conceptual urban studies research emphasizing the downside of these transactions are some of the only sources of information on these instruments. These stories and studies often allude to or speculate on a more basic question: Why would a government choose to enter into a complex financial instrument like a debt-related derivative? This research posits three exploratory hypotheses—financial health, financial experience and/or financial sector influence, and governance structure—culled from media accounts and the urban studies literature on the use of debt-related derivatives by city governments in the United States. It empirically explores these hypotheses by examining the various fiscal, financial, and issuer characteristics of the largest 50 U.S. cities and their choice of whether to use debt-related derivatives. The research finds that the characteristics of government most associated with debt-related derivative use are declining financial condition, increased financial experience and/or financial sector influence, and prior use of interest rate swaps.

Original languageEnglish (US)
JournalUrban Affairs Review
DOIs
StateAccepted/In press - Jan 1 2018

Fingerprint

debt
indebtedness
engineering
interest rate
financial derivatives
financial policy
source of information
transaction
experience
coverage
governance
city
health
press
urban study

Keywords

  • derivatives
  • financial engineering
  • financialization
  • interest rate swaps
  • public financial management

ASJC Scopus subject areas

  • Sociology and Political Science
  • Urban Studies

Cite this

@article{6fd9a0f4bfe144f28acf70716eacf664,
title = "Financial Engineering by City Governments: Factors Associated with the Use of Debt-Related Derivatives",
abstract = "Despite significant coverage in the financial press in recent years, financial engineering by city governments via the use of financial derivatives such as interest rate swaps remain an understudied area of urban financial policy. Indeed, press accounts and other case or conceptual urban studies research emphasizing the downside of these transactions are some of the only sources of information on these instruments. These stories and studies often allude to or speculate on a more basic question: Why would a government choose to enter into a complex financial instrument like a debt-related derivative? This research posits three exploratory hypotheses—financial health, financial experience and/or financial sector influence, and governance structure—culled from media accounts and the urban studies literature on the use of debt-related derivatives by city governments in the United States. It empirically explores these hypotheses by examining the various fiscal, financial, and issuer characteristics of the largest 50 U.S. cities and their choice of whether to use debt-related derivatives. The research finds that the characteristics of government most associated with debt-related derivative use are declining financial condition, increased financial experience and/or financial sector influence, and prior use of interest rate swaps.",
keywords = "derivatives, financial engineering, financialization, interest rate swaps, public financial management",
author = "Akheil Singla and Luby, {Martin J.}",
year = "2018",
month = "1",
day = "1",
doi = "10.1177/1078087418802360",
language = "English (US)",
journal = "Urban Affairs Review",
issn = "1078-0874",
publisher = "SAGE Publications Inc.",

}

TY - JOUR

T1 - Financial Engineering by City Governments

T2 - Factors Associated with the Use of Debt-Related Derivatives

AU - Singla, Akheil

AU - Luby, Martin J.

PY - 2018/1/1

Y1 - 2018/1/1

N2 - Despite significant coverage in the financial press in recent years, financial engineering by city governments via the use of financial derivatives such as interest rate swaps remain an understudied area of urban financial policy. Indeed, press accounts and other case or conceptual urban studies research emphasizing the downside of these transactions are some of the only sources of information on these instruments. These stories and studies often allude to or speculate on a more basic question: Why would a government choose to enter into a complex financial instrument like a debt-related derivative? This research posits three exploratory hypotheses—financial health, financial experience and/or financial sector influence, and governance structure—culled from media accounts and the urban studies literature on the use of debt-related derivatives by city governments in the United States. It empirically explores these hypotheses by examining the various fiscal, financial, and issuer characteristics of the largest 50 U.S. cities and their choice of whether to use debt-related derivatives. The research finds that the characteristics of government most associated with debt-related derivative use are declining financial condition, increased financial experience and/or financial sector influence, and prior use of interest rate swaps.

AB - Despite significant coverage in the financial press in recent years, financial engineering by city governments via the use of financial derivatives such as interest rate swaps remain an understudied area of urban financial policy. Indeed, press accounts and other case or conceptual urban studies research emphasizing the downside of these transactions are some of the only sources of information on these instruments. These stories and studies often allude to or speculate on a more basic question: Why would a government choose to enter into a complex financial instrument like a debt-related derivative? This research posits three exploratory hypotheses—financial health, financial experience and/or financial sector influence, and governance structure—culled from media accounts and the urban studies literature on the use of debt-related derivatives by city governments in the United States. It empirically explores these hypotheses by examining the various fiscal, financial, and issuer characteristics of the largest 50 U.S. cities and their choice of whether to use debt-related derivatives. The research finds that the characteristics of government most associated with debt-related derivative use are declining financial condition, increased financial experience and/or financial sector influence, and prior use of interest rate swaps.

KW - derivatives

KW - financial engineering

KW - financialization

KW - interest rate swaps

KW - public financial management

UR - http://www.scopus.com/inward/record.url?scp=85059305710&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85059305710&partnerID=8YFLogxK

U2 - 10.1177/1078087418802360

DO - 10.1177/1078087418802360

M3 - Article

AN - SCOPUS:85059305710

JO - Urban Affairs Review

JF - Urban Affairs Review

SN - 1078-0874

ER -