Mendoza School of Business

Report finds racial bias in the bond market against historically black colleges and universities

Published: April 12, 2016 / Author: Amy Scott, NPR

The bond market may seem like an unlikely place to find racism at work. But a new report suggests that discrimination may play a role in higher borrowing costs for historically black colleges and universities, or HBCUs.

The research was inspired by a conversation with bond traders, said William Mayew, an accounting professor at Duke University and one of the report’s authors. The traders talked about struggling to place bonds issued by HBCUs.

“Their clients would say, ‘Well, what else do you have, do you have something else? I’d prefer not to have that in my portfolio,’” Mayew said.

Because bond traders have to search harder for buyers, Mayew and his fellow researchers found that HBCUs pay 15 to 20 percent more in fees than similar predominantly white colleges – and not because of a higher risk of default, Mayew said. Researchers saw the same effect even when comparing bonds with AAA credit ratings insured by the same company.

Read the entire story on the NPR Marketplace website.

This study was coauthored by finance Associate Professor Pengjie Gao.