Abstract

http://ssrn.com/abstract=2304373
 
 

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Credit Ratings and the Cost of Municipal Financing


Jess Cornaggia


Georgetown University

Kimberly Rodgers Cornaggia


American University - Kogod School of Business

Ryan D. Israelsen


Indiana University - Department of Finance

March 27, 2014


Abstract:     
Moody’s recalibrated its municipal bond rating scale in 2010, resulting in upgrades of zero to four notches on $2.2 trillion of bonds. We find the upgraded bonds earn abnormal returns, increasing in upgrade magnitude. Upgraded municipalities subsequently issue more bonds, relative to non-upgraded municipalities, and the new issues have lower relative offer yields. Additional tests indicate that ratings affect bond prices and debt capacity both because ratings provide information and because higher ratings reduce regulatory compliance costs. Overall, this recalibration event sheds light on the information environment in the municipal bond market and on the real effects of ratings.

Number of Pages in PDF File: 61

Keywords: Credit Ratings, NRSRO, Municipal Debt, Information Production, Capital Markets Regulation

JEL Classification: G24, G28

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Date posted: August 1, 2013 ; Last revised: March 29, 2014

Suggested Citation

Cornaggia, Jess and Cornaggia, Kimberly Rodgers and Israelsen, Ryan D., Credit Ratings and the Cost of Municipal Financing (March 27, 2014). Available at SSRN: http://ssrn.com/abstract=2304373 or http://dx.doi.org/10.2139/ssrn.2304373

Contact Information

Jess Cornaggia (Contact Author)
Georgetown University ( email )
3700 O Street, NW
Washington, DC 20057
United States
HOME PAGE: http://www.jesscornaggia.com
Kimberly Rodgers Cornaggia
American University - Kogod School of Business ( email )
4400 Massachusetts Avenue NW
Washington, DC 20816-8044
United States
Ryan D. Israelsen
Indiana University - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States
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