Does Timeliness of Financial Information Matter in the Governmental Sector?

• In Event: Understanding Financial Markets and Financial Condition

Abstract

In 2012, the SEC noted that municipal bond investors are often not afforded access to the same timely financial information as investors in other U.S. capital markets (SEC 2012) despite the fact that there are over one million distinct municipal bonds outstanding with an aggregate principal amount of more than $3.7 trillion. To our knowledge, prior research has not directly examined the impact of timeliness of financial information on primary municipal holdings. Thus, the purpose of this study is to examine whether the timeliness of financial information included in the official registration statement of a municipal bond impacts a government’s initial yield spread and bond rating. Overall, our results suggest that a lack of timely information increases a municipality’s cost of debt. Additionally, the municipal bond sector affords a unique setting to examine whether increases in the municipality’s cost of debt serves as a proxy for management quality and/or whether the market is responding to the inherent timeliness of the financial information.

Authors

• Chris Edmonds, university of alabama-birmingham

• Jennifer Echols Edmonds, University of Alabama at Birmingham

• Beth Y. Vermeer, University of Delaware

• Thomas E Vermeer, University of Delaware