Abstract

http://ssrn.com/abstract=2304373
 
 

References (51)



 


 



Credit Ratings and the Cost of Municipal Financing


Jess Cornaggia


Pennsylvania State University - Department of Finance

Kimberly Rodgers Cornaggia


Pennsylvania State University - Department of Finance

Ryan D. Israelsen


Indiana University - Kelley School of Business - Department of Finance

October 5, 2015


Abstract:     
Moody’s recalibrated its municipal bond rating scale in 2010, upgrading $2.2 trillion of municipal debt. This event allows us to test whether investors rely on ratings to assess credit risk, free from confounding regulatory effects and changing fundamentals. We find the upgrades lowered credit spreads and expanded municipal debt capacity. These effects are stronger among more opaque issuers. We conclude that rating agencies will remain relevant despite legislators’ efforts to reduce regulatory reliance on ratings. Our results further commend improved disclosure to mitigate mechanistic reliance on ratings and inefficiencies due to rating standards that vary across asset classes.

Number of Pages in PDF File: 67

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

JEL Classification: G24, G28


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Date posted: August 1, 2013 ; Last revised: July 2, 2016

Suggested Citation

Cornaggia, Jess and Cornaggia, Kimberly Rodgers and Israelsen, Ryan D., Credit Ratings and the Cost of Municipal Financing (October 5, 2015). Available at SSRN: http://ssrn.com/abstract=2304373 or http://dx.doi.org/10.2139/ssrn.2304373

Contact Information

Jess Cornaggia (Contact Author)
Pennsylvania State University - Department of Finance ( email )
University Park, PA 16802
United States
HOME PAGE: http://jesscornaggia.com
Kimberly Rodgers Cornaggia
Pennsylvania State University - Department of Finance ( email )
306 Business Bldg
University Park, PA 16802
United States
814-865-2243 (Phone)
814-865-3362 (Fax)
Ryan D. Israelsen
Indiana University - Kelley School of Business - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States

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