Premium Municipal Bonds and Issuer Fiscal Distress

Federal Reserve Bank of Cleveland, Working Paper No. 15/34

26 Pages Posted: 14 Jan 2016

See all articles by Stephan Whitaker

Stephan Whitaker

Federal Reserve Bank of Cleveland

O. Emre Ergungor

affiliation not provided to SSRN

Date Written: December 30, 2015

Abstract

Economic theory suggests that bond issuers of lower credit quality or higher opacity should be more likely to issue bonds with premium coupons (higher coupon rates relative to yields at issuance). Using a comprehensive data set of municipal bonds issued between 1992 and 2012 by more than 21,000 issuers, we show that this has not been the case until the early 2000s. We examine what changed in this market to bring it into greater alignment with economic principles. We argue that the Government Accounting Standards Board’s Statement 34 that required the use of accrual accounting rules in government financial reports deserves the credit.

Keywords: Premium Bonds, Public Financial Management, Municipal Bonds, Fiscal Stress, GASB Statement 34

JEL Classification: H74, G280, R510

Suggested Citation

Whitaker, Stephan and Ergungor, Ozgur Emre, Premium Municipal Bonds and Issuer Fiscal Distress (December 30, 2015). Federal Reserve Bank of Cleveland, Working Paper No. 15/34. Available at SSRN: https://ssrn.com/abstract=2714937 or http://dx.doi.org/10.2139/ssrn.2714937

Stephan Whitaker

Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States
216-579-2040 (Phone)

HOME PAGE: https://www.clevelandfed.org/people-search?pid=4c4a007e-ccbc-470a-a6fe-98dab91cec08

Ozgur Emre Ergungor (Contact Author)

affiliation not provided to SSRN

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