Government Reporting Timeliness and Municipal Credit Market Implications

Abstract

ABSTRACT Municipal governments are often very slow in producing and disclosing financial statements, with the average time for filing compulsory statements taking over twice as long as the SEC-mandated time for publicly traded corporations. There are typically no governmental rules or explicit penalties connected with extended financial reporting. We propose this delay in reporting is likely to have negative capital market effects for the municipality and we investigate the credit market consequences of delayed reporting. Our empirical results are consistent with delayed reporting resulting in lower bond ratings for municipalities indicating a negative interpretation by bond rating analysts. Furthermore, we also find a higher yield for the government's bonds consistent with bond market investors also viewing this delay as a negative signal with respect to the particular government entity. Our results add to the literature on government reporting as well as the literature regarding the determinants of government bond pricing. JEL Classifications: G12; G18; H11; H74; H83. Data Availability: Data are available from sources identified in the article.