What Drives Financial Reform? Economics and Politics of the State-Level Adoption of Municipal Bankruptcy Laws

Stefano Rossi

No 10984, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We investigate economic and political theories of financial reform to analyze state-level adoption of municipal bankruptcy laws (Chapter 9). Using a dynamic Cox hazard model, we find that interest group factors related to the relative strength of potential losers (labor unions) and winners (bond investors), courts? efficiency, and trust in non-opportunistic behavior by local government explain the timing of Chapter 9 adoptions between 1980 and 2012. Similar factors also explain congressional voting on municipal bankruptcy law. After Chapter 9 adoption, municipal bond spreads decrease and firms experience higher revenues, profits, and investments, particularly in states in which more bond proceeds are used by the private sector. Our findings support political and economic theories of financial reform, and highlight a novel spillover channel from the public to the private sector.

Keywords: Bankruptcy; Chapter 9; Judicial efficiency; Labor union; Municipal bonds (search for similar items in EconPapers)
JEL-codes: D86 G33 G34 K22 (search for similar items in EconPapers)
Date: 2015-12
New Economics Papers: this item is included in nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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