Financial Reform and Public Good Provision: Municipal Bankruptcy Law and the Financing of Hospitals

54 Pages Posted: 4 Dec 2015 Last revised: 19 Oct 2021

See all articles by Stefano Rossi

Stefano Rossi

Bocconi University; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Hayong Yun

Michigan State University - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: October 19, 2021

Abstract

Does financial reform improve public good provision? We examine state-level adoption of municipal bankruptcy law. After reform, municipalities’ borrowing costs decrease and bonds’ issuance increase, particularly for bonds financing hospitals; hospitals’ investments increase, particularly when using such bonds; local firms’ investment and performance increase, particularly in the construction sector. Ex-ante, reform occurs earlier in states with weaker unions, stronger bondholders’ interests, and better courts. Similar factors explain congressional voting on municipal bankruptcy law. These results support the hypothesis that financial reform destroys labor union rents and expands investment, highlighting a novel spillover channel from public finance to the real economy.

Keywords: bankruptcy, Chapter 9, municipal bonds, hospitals

JEL Classification: D86, G33, G34, K22

Suggested Citation

Rossi, Stefano and Yun, Hayong, Financial Reform and Public Good Provision: Municipal Bankruptcy Law and the Financing of Hospitals (October 19, 2021). Available at SSRN: https://ssrn.com/abstract=2698665 or http://dx.doi.org/10.2139/ssrn.2698665

Stefano Rossi

Bocconi University ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Hayong Yun (Contact Author)

Michigan State University - Department of Finance ( email )

667 N Shaw Lane, Room 339
East Lansing, MI 48824-1122
United States
517-884-0549 (Phone)

HOME PAGE: http://https://sites.google.com/view/hayongyun/

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