Limits of Disclosure Regulation in the Municipal Bond Market

65 Pages Posted: 3 Feb 2022 Last revised: 28 Jul 2022

See all articles by Ivan Ivanov

Ivan Ivanov

Federal Reserve Bank of Chicago

Tom Zimmermann

University of Cologne

Nathan Heinrich

Board of Governors of the Federal Reserve System

Date Written: July 28, 2022

Abstract

We examine the effectiveness of recent federal disclosure regulation aiming to improve transparency in the $4 trillion municipal bond market. Governments fail to disclose material private debt agreements up to 80% of the time and, conditional on disclosure, filings often omit contract details essential for bond pricing. Non-compliant issuers are significantly riskier than compliers, with disclosure decreasing in the potential of private debt to adversely affect bondholders. We show that disclosure reveals positive news and is especially informative to investors in low-rated bonds or during market crises. Overall, private debt continues to pose significant risks to municipal bond investors.

Keywords: municipal bond pricing, disclosure regulation, private debt

JEL Classification: H74, G14, G18

Suggested Citation

Ivanov, Ivan and Zimmermann, Tom and Heinrich, Nathan, Limits of Disclosure Regulation in the Municipal Bond Market (July 28, 2022). Available at SSRN: https://ssrn.com/abstract=4022819 or http://dx.doi.org/10.2139/ssrn.4022819

Ivan Ivanov (Contact Author)

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

HOME PAGE: http://ivantivanov.com

Tom Zimmermann

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

Nathan Heinrich

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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