Abstract

https://ssrn.com/abstract=2304373
 
 

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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

December 23, 2016


Abstract:     
Moody’s recalibrated its municipal bond rating scale in 2010, updating the ratings on $2.2 trillion of municipal debt. The recalibration was unrelated to changes in bonds’ fundamentals and the municipal bond market is dominated by unregulated retail investors. Therefore, this recalibration event allows us to test whether credit ratings have causal effects apart from their regulatory implications. We find the recalibration affected credit spreads and municipal debt issuance, with stronger effects among issuers in weak information environments. Our results 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: 61

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: December 26, 2016

Suggested Citation

Cornaggia, Jess and Cornaggia, Kimberly Rodgers and Israelsen, Ryan D., Credit Ratings and the Cost of Municipal Financing (December 23, 2016). Available at SSRN: https://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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