Limits of Disclosure Regulation in the Municipal Bond Market

We examine the effectiveness of recent federal disclosure regulation aiming to improve transparency in the $4 trillion municipal bond market. Governments fail to disclose material private placements 50%–60% of the time and, conditional on disclosure, filings often omit contract details essential for bond pricing. Noncompliant issuers are significantly riskier than compliers, with disclosure decreasing in the potential of privately placed debt to adversely affect bondholders. We show that disclosure reveals positive news and is especially informative to investors in low-rated bonds or during market crises. Overall, privately placed debt continues to pose significant risks to municipal bond investors. This paper was accepted by Victoria Ivashina, finance. Funding: T. Zimmermann has received financial support from the Deutsche Forschungsgemeinschaft under Germany’s Excellence Strategy [EXC2126/139083886]. Supplemental Material: The online appendices and data files are available at https://doi.org/10.1287/mnsc.2022.02289 .

• 저널Management Science · 71(10) · 8452–8470
• 토픽Credit Risk and Financial Regulations · Finance
• DOI10.1287/mnsc.2022.02289
• 저자Ivan Ivanov, Tom Zimmermann, Nathan Heinrich