The Information Content of Municipal Financial Statements: Large-sample Evidence

47 Pages Posted: 18 Aug 2022

See all articles by Christine Cuny

Christine Cuny

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

Ken Li

McMaster University - Michael G. DeGroote School of Business

Anya Nakhmurina

Yale School of Management

Edward M. Watts

Yale School of Management

Date Written: November 10, 2021

Abstract

The usefulness of financial disclosures is a source of considerable debate in the municipal setting, given their lack of timeliness. This paper empirically examines the extent to which municipal financial disclosures have information content. Using the entire universe of annual financial disclosures from 2009 to 2020, we show that trading activity in the secondary market for municipal bonds increases after the disclosures are filed. Both institutional and retail trades increase around disclosure filings, but the effect is pronounced for retail traders, for whom the reports are more likely to provide new information. Moreover, the heightened trading is pronounced for timelier disclosures, consistent with regulators' views that untimely disclosures are less likely to provide new information. We also find a pronounced response when investors' risk is high and when the disclosures contain risk-related discussions. Our results contrast with earlier research and provide the first large-scale evidence that participants in the U.S. market for municipal bonds perceive financial disclosures to have informational value.

Keywords: Information Content, Municipal Disclosure, Municipal Bonds

JEL Classification: G12, G14, G18, H7

Suggested Citation

Cuny, Christine and Li, Ken and Nakhmurina, Anya and Watts, Edward, The Information Content of Municipal Financial Statements: Large-sample Evidence (November 10, 2021). Available at SSRN: https://ssrn.com/abstract=4186418 or http://dx.doi.org/10.2139/ssrn.4186418

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)

Ken Li

McMaster University - Michael G. DeGroote School of Business ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

Anya Nakhmurina

Yale School of Management ( email )

165 Whitney Ave
New Haven, CT 06511
United States

Edward Watts

Yale School of Management ( email )

165 Whitney Ave
New Haven, CT 06511

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
168
Abstract Views
467
rank
250,169
PlumX Metrics