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The purpose of the study was to identify significant predictors for two selected dependent variables, (1) net interest cost and (2) number of bids, for Indiana public school building corporation first mortgage revenue bond issues.All Indiana public school building corporations marketing first mortgage revenue bonds during any calendar year that existing or comparable legal and bond market conditions applied constituted the population of the study.The sample consisted of 131 Indiana public school building corporations which issued bonds during the calendar years, 1970 through 1974. Data were obtained through responses by officials of 113 school corporations to the Bond Issue Data Instrument.Eighteen independent variables, identified from the literature as important for receiving favorable net interest costs and a higher number of bids, were selected. A backward stepwise multiple regression analysis was used to determine the independent variables that served as best predictors for net interest cost. The analysis was repeated substituting number of bids as the dependent variable.The following conclusions were generated from the data analyses:1. National weekly bond average interest cost is the strongest predictor of net interest cost. National bond market declines generally predict lower net interest costs.2. Lower net interest costs can be obtained by minimizing length of bond issue.3. Indebtedness ratio is a strong predictor of net interest cost. Generally, a lower net interest cost can be expected as indebtedness ratio decreases.4. Date of issue is a significant predictor of net interest cost. Generally, the higher number of Julian days, the higher the interest rate. Conclusive evidence identifying any quarter of the year as the best time to market bonds was absent.5. Type of issue, new or refunded, is a strong predictor of number of bids for a given bond issue. Generally, more bids can be expected for new issues.6. National weekly bond average interest cost is a strong predictor of number of bids. Generally, a declining national average indicates a larger number of bids.7. Ratings by more than one rating company cannot be expected to attract more bidders.8. Net interest cost and number of bids are not affected significantly by administrative practices such as employing bond counsel, outside consultants to prepare prospectus, and financial counsel and the amount or kind of advertising of the bond issue.Recommendations for school officials involved in the process of marketing a school bond issue and for further study were as follows:1. School administrators should analyze economic trends likely to affect national weekly bond averages. Such factors include: (1) bond and stock market fluctuations, (2) actions by the United States Treasury and Federal Reserve Board with respect to governmental fiscal and monetary policy, and (3) international balance of payments.2. Because the length of term has been identified as an important predictor of net interest cost consideration should be given to developing an extensive public relations program which emphasizes the advantages of the shorter term bond issue. Where feasible the term should be 20 years or less.3. Because the ratio of gross bonded indebtedness to local assessed valuation has been identified as an important predictor of net interest cost consideration should be given to reducing the existing indebtedness of the school corporation. Where feasible, the debt ratio should not exceed the 20-25 per cent range for favorable interest costs.4. School administrators should assume more responsibility in preparing the prospectus, in the financial planning, and in obtaining the bond rating.5. The study should be replicated every two years to determine if the predictors identified in this study remain consistent with respect to predictability. The data base could be enlarged to include all public school building corporations marketing bonds for the calendar years 1970 through the most recent year data were available.6. A national study should be conducted which could randomly sample school districts throughout the nation, using variables selected from the study, with appropriate adjustments, to determine the strongest national predictor variables of lower net interest cost.7. A study should be conducted which would provide a handbook to assist Indiana school districts in marketing bond issues. |
