When knowledge is power: Evidence from the municipal bond market

Cuny, Christine

doi:10.1016/j.jacceco.2017.11.002

Cited by 54 publications

(48 citation statements)

References 20 publications

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“…However, we find that the drop in disclosure is similar across all quantiles of active retail investor trading. This suggests that retail investors' demand for information at least partially drives our results, consistent with recent evidence documenting that retail investors consume municipal disclosure (Cuny [2017]).…”

Section: Introductionsupporting

confidence: 90%

“…Finding that issuers with more liquid bonds reduce disclosure less would support this prediction. However, we also note that the municipal bond market is, in large part, highly illiquid, and prior literature suggests that significant transaction and information acquisition costs prevent prices from fully reflecting all available information (Cuny [2017]).…”

Section: The Effect Of Credit Rating Upgrades On Municipal Disclosurementioning

confidence: 60%

“…17 However, some recent studies find evidence consistent with retail investors demanding municipal disclosure, despite their heavy reliance on ratings. The MSRB created the Electronic Municipal Market Access website (EMMA) to facilitate retail investors' access to information about firm fundamentals, and consistent with this notion, Cuny [2017] finds that this access to financial information allows retail investors to negotiate better prices with dealers. In addition,…”

Section: The Effect Of Credit Rating Upgrades On Municipal Disclosurementioning

confidence: 94%

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The Role of Credit Rating Changes on Opacity in the Municipal Bond Market

2018

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This paper examines how credit ratings affect debt issuers' disclosure decisions. Using the recalibration of Moody's municipal ratings scale in 2010 as an exogenous upgrade to credit ratings, we find that upgraded municipalities significantly reduced their disclosure of financial information relative to unaffected municipalities. Consistent with a reduction in debtholders' demand for information driving our results, we find that the reduction in disclosure is greater for issuers with debtholders that rely more on disclosure ex-ante. We also find a smaller reduction in disclosure for issuers with monitoring by local underwriters, and for issuers under direct regulatory oversight. Collectively, our results suggest that debtholders demand less information when they perceive credit risk to be lower, and that relying on market forces alone (e.g., debtholders and underwriters) may not achieve greater transparency in the municipal bond market as desired by regulators.

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Section: Introductionsupporting

confidence: 90%

Section: The Effect Of Credit Rating Upgrades On Municipal Disclosurementioning

confidence: 60%

Section: The Effect Of Credit Rating Upgrades On Municipal Disclosurementioning

confidence: 94%

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The Role of Credit Rating Changes on Opacity in the Municipal Bond Market

2018

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“…Finding that issuers with more actively traded bonds reduce disclosure less would support this prediction. However, the municipal bond market is, in large part, highly illiquid, and prior literature suggests that significant transaction and information acquisition costs prevent prices from fully reflecting all available information (Cuny [2018]). 18 As stated by the SEC, "Rule 15c2-12 is intended to enhance disclosure, and thereby reduce fraud, in the municipal securities market by establishing standards for obtaining, reviewing, and disseminating information about municipal securities by their underwriters" (SEC [2010]).…”

Section: The Role Of Underwritersmentioning

confidence: 99%

“…During this period, indirect household investment also declined slightly, while investment from banks and insurance companies increased proportionately. 45 We follow prior literature and use market conventions to distinguish between retail and institutional trading (e.g., Edwards, Harris, and Piwowar [2007], Cuny [2018]). This table presents difference-in-differences estimates of the percentage of retail and institutional investor trades around Moody's ratings recalibration.…”

Section: Changes In Investor Basementioning

confidence: 99%

The Effect of Credit Ratings on Disclosure: Evidence from the Recalibration of Moody's Municipal Ratings

Gillette

Samuels

Zhou

2020

J of Accounting Research

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This paper examines how credit rating levels affect municipal debt issuers' disclosure decisions. Using exogenous upgrades in credit rating levels caused by the recalibration of Moody's municipal ratings scale in 2010, we find that upgraded municipalities significantly reduce their disclosure of required continuing financial information, relative to unaffected municipalities. Consistent with a reduction in debtholders' demand for information driving these results, the reduction in disclosure is greater when municipal bonds are * Sloan School of Management, MIT; † The Wharton School, University of Pennsylvania.Accepted by Christian Leuz. We gratefully acknowledge helpful comments and suggestions from John Core, held by investors who relied more on disclosure ex ante. However, we also find that the reduction in disclosure does not manifest when issuers are monitored by underwriters with greater issuer-specific expertise and when issuers are subject to direct regulatory enforcement through the receipt of federal funding. Overall, our results suggest that higher credit rating levels lower investor demand for disclosure in the municipal market, and highlight the role of underwriters and direct regulatory enforcement in maintaining disclosure levels when investor demand is low. JEL codes: G24; G28; H74; M40; M41

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Fiscal transparency or fiscal illusion? Housing and credit market responses to fiscal monitoring

Yang

2021

Int Tax Public Finance

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When knowledge is power: Evidence from the municipal bond market

Cited by 54 publications

References 20 publications

The Role of Credit Rating Changes on Opacity in the Municipal Bond Market

The Role of Credit Rating Changes on Opacity in the Municipal Bond Market

The Effect of Credit Ratings on Disclosure: Evidence from the Recalibration of Moody's Municipal Ratings

Fiscal transparency or fiscal illusion? Housing and credit market responses to fiscal monitoring

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