Determinants of Depositor Demand for the Texas Local Government Investment Pool

Abstract

Local government investment pools (LGIP's) provide the political subdivisions of a state with a cost-effective option for investing their daily cash balances in an incomeproducing fund.LGIP's have grown into a $250 billion dollar industry in 44 states. This study reports on the factors that affect demand by depositors using time series data from TexPool. The results show that the yield spread of LGIP's has a nonlinear relationship with demand, the pool's liquidity was inversely related to demand, and TexPool's average monthly yield levels had no effect on demand. This study supports the normative values expected of local government investors-priority on safety and liquidity of principal. Outsourcing of the fund's management and aligning the pool's average maturity to the purpose of the pool brought a high level of confidence in the fund as seen by the substantial growth in both the average balance of investments and the number of depositors.

Institutional isomorphism and cash management practices in Mississippi

“…Furthermore, the depository is required to be registered with the Federal Depository Insurance Corporation (FDIC). This requirement is a departure from laws in other states regulating the use of investment pools for commingling public funds (Bland et al, 2015). Moreover, the state law further requires that if the depository receives more than the $ 250,000 FDIC-insured amount, the extra funds must also be insured.…”

“…Similarly, no significant differences are reported between urban and rural counties regarding the four financial ratios computedfund balance to general fund expenditure ratio, cash ratio, cash on hand in days and fiscal health. Previous studies suggest that controlling for other factors, those with larger cash surpluses, have the benefits of economies of scale to invest in short-term securities and be more innovative with their reserved funds (Nukpezah, 2018;Bland et al, 2015;Thompson and Gates, 1988;Orndorff and Syal, 1997;Strachota, 1991). Other studies also find differences in local cash management practices based on the size of the budget or the size of the city.…”

“…Research on cash management practices of states and local governments has received much attention in the public finance literature (Nukpezah, 2018;Kim, 2016;Bland et al, 2015;Modlin and Stewart, 2013;Thompson and Gates, 1988;Bland, 1986;Aronson, 1968). Although this heightened attention has led to significant increases in governments' use of investment products, local government cash holdings are still high (Mikesell, 2011;Gore, 2009).…”

“…Another study that examines LGIPs in 18 states concludes that the different institutional arrangements used by these pools reflect a risk-return relationship and that those states willing to take more risks are compensated with higher yields on their investment funds (Nukpezah, 2018). The extant research also suggests yield on investments, safety and sales tax revenues contribute to the decision to invest cash surpluses (Kim, 2016;Bland et al, 2015;Modlin and Stewart, 2013).…”

Structuring fund for affordable housing investment in Malaysia: an exploratory research

“…As a sizeable amount of funding is required for this purpose, institutional investors who manage substantial amount of money to invest are among the best candidates to serve this function (Milligan et al , 2013a, 2013b; World Bank, 2016) . Besides focusing on financial return, institutional investors vis-à-vis private investors may pursue higher-end objectives in social welfare development of communities under the pretext of ethical and responsible investments (Bland et al , 2015; Milligan et al , 2013b).…”