Bond pricing in the biggest city bankruptcy in history: The effects of state emergency management laws on default risk

Austin Murphy

International Review of Law and Economics, 2018, vol. 54, issue C, 106-117

Abstract: This study investigates the returns to bondholders around important events in the Detroit bankruptcy that impacted market expectations of recoveries on the City’s debt. It illustrates how stricter State interference in the financial affairs of a distressed local government can increase the likely payoff to that entity’s own creditors. However, such interventions are also shown to potentially raise the default risk of economically related municipalities. Further investigations indicated that increases in Michigan’s emergency management powers did not positively impact the returns on a broad sample of distressed municipal bonds in Michigan nor improve the overall credit quality of the State and its political subdivisions.

Keywords: Emergency management; Bankruptcy municipal finance; Bond pricing (search for similar items in EconPapers)
JEL-codes: G10 G33 H12 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:irlaec:v:54:y:2018:i:c:p:106-117

DOI: 10.1016/j.irle.2017.12.001

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