Consequences of Gaap Disclosure Regulation: Evidence from Municipal Debt Issues
46 Pages Posted: 14 Sep 2005 Last revised: 22 Feb 2012
Date Written: October 2007
We compare characteristics of municipal debt issues in states that mandate GAAP for municipalities with issues in states that impose no annual financial disclosure requirements. Cross-sectional comparisons indicate that the use of public (versus private) debt is greater, and municipal debt costs are 14 to 25 basis points lower, in states where GAAP is mandated. Moreover, municipalities in states that impose the GAAP requirement realize lower debt costs following the effective date of the regulation. These results suggest that GAAP requirements reduce municipal borrowing costs. More generally, the evidence indicates that financial reporting regulation reduces contracting costs between borrowers and lenders.
Keywords: Regulation, disclosure, bonds, private debt, local government, public debt
JEL Classification: G12, G38, H79, K22, M41, M44, M48
Suggested Citation: Suggested Citation