The Moderating Role of Reporting Quality

44 Pages Posted: 5 Sep 2018 Last revised: 29 Jul 2021

See all articles by Christine Cuny

Christine Cuny

New York University (NYU) - Leonard N. Stern School of Business

Svenja Dube

Fordham University - Gabelli School of Business

Date Written: November 20, 2019


This paper examines whether municipal market participants' sensitivity to signals about the local economy varies with the quality of local governments' historical financial reports. We find the credit ratings and bond yields of governments that are required to comply with Generally Accepted Accounting Principles (GAAP) are less sensitive to changes in local home values than similarly affected governments that are not required to comply with GAAP. To attribute these results to reporting quality, we confirm in a difference-in-differences analysis that GAAP's moderating role increased after the adoption of GASB 34, which substantially improved the quality of GAAP compliant issuers' financial reports. To understand the mechanism, we study positive and negative economic signals separately. Consistent with reporting quality decreasing market participants' uncertainty about issuers' pre-existing likelihood of default, the results are pronounced when the change in home values generates the most uncertainty (i.e., when the change is adverse). We conclude that market participants are less sensitive to local economic signals when the government's historical financial reports are of higher quality.

Keywords: Reporting quality, transparency, cost of debt, credit ratings, municipal debt

JEL Classification: D80, G24, H74

Suggested Citation

Cuny, Christine and Dube, Svenja, The Moderating Role of Reporting Quality (November 20, 2019). 28th Annual Conference on Financial Economics and Accounting, Available at SSRN: or

Christine Cuny (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Ste. 10-91
New York, NY NY 10012
United States
212-998-0423 (Phone)

Svenja Dube

Fordham University - Gabelli School of Business ( email )

140 West 62nd Street
New York, NY 10023
United States

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