The Moderating Role of Disclosure Quality

40 Pages Posted: 5 Sep 2018 Last revised: 24 Nov 2019

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

Abstract

We examine whether municipal market participants' sensitivity to changes in local home values varies with the quality of local governments' financial reports. We find the credit ratings and bond yields of governments that are required to comply with GAAP are less sensitive to changes in local home values than similarly-affected governments that are not required to comply with GAAP. These governments do not experience different changes in net revenues ex post. The results are pronounced when the change in home values generates the most uncertainty (i.e., the change is adverse). The results are also stronger after GASB 34 increased the quality of GAAP-compliant issuers' financial reports. We conclude that market participants are less sensitive to signals about the local economy when local governments are required to provide high-quality disclosures.

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 Disclosure Quality (November 20, 2019). 28th Annual Conference on Financial Economics and Accounting, Available at SSRN: https://ssrn.com/abstract=3002674 or http://dx.doi.org/10.2139/ssrn.3002674

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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