Limits of Disclosure Regulation in the Municipal Bond Market

Ivan T. Ivanov (), Tom Zimmermann () and Nathan W. Heinrich ()
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Ivan T. Ivanov: Federal Reserve Bank of Chicago, Research Division, Chicago, Illinois 60604
Tom Zimmermann: Department of Econometrics and Statistics, University of Cologne, 50931 Cologne, Germany; and Centre for Financial Research, 50923 Cologne, Germany
Nathan W. Heinrich: Board of Governors of the Federal Reserve System, Division of Research and Statistics, Washington, District of Columbia 20551

Management Science, 2025, vol. 71, issue 10, 8452-8470

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 placements 50%–60% of the time and, conditional on disclosure, filings often omit contract details essential for bond pricing. Noncompliant issuers are significantly riskier than compliers, with disclosure decreasing in the potential of privately placed 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, privately placed debt continues to pose significant risks to municipal bond investors.

Keywords: municipal bond pricing; disclosure regulation; private debt (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:71:y:2025:i:10:p:8452-8470

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