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 - Kelley School of Business - Department of Finance

July 17, 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: 62

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 18, 2015

Suggested Citation

Cornaggia, Jess and Cornaggia, Kimberly Rodgers and Israelsen, Ryan D., Credit Ratings and the Cost of Municipal Financing (July 17, 2015). 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 - Kelley School of Business - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States

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