The Effect of New Issue Accounting Information on Seasoned Municipal Bond Prices
Posted: 10 Feb 1997
Date Written: May 1996
Prior studies have shown that seasoned municipal bond prices exhibit a marked increase in variability during the period of new bond issues by the same municipality. Those studies did not attempt, however, to determine whether accounting information was part of the total information being assimilated into the seasoned bond prices. This issue is of substantial policy interest given the SEC's recent rule barring dealers from underwriting new issues unless the issuer agrees to provide continuing disclosure to investors. The SEC acted following growing concern about poor disclosure in the municipal bond secondary market. This study provides evidence that accounting measures believed to be important to bond investors are significantly associated with returns on the seasoned bonds of infrequent issuers during a new issue but not during two control nonevent periods. No associations were found for frequent issuers.
JEL Classification: M41, G12
Suggested Citation: Suggested Citation