Municipal Credit Ratings and Unfunded Pension Liabilities: New Evidence?

Fahad Alshathri, J. Richard Aronson and Nandkumar Nayar2 ()
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Fahad Alshathri: Ministry of Finance, Kingdom of Saudi Arabia
J. Richard Aronson: College of Business & Economics, Lehigh University
Nandkumar Nayar2: College of Business & Economics, Lehigh University

Capital Markets Review, 2015, vol. 23, issue 1&2, 1-24

Abstract: This paper investigates whether a municipality’s unfunded pension plan liabilities are associated with the municipality’s credit rating. We answer this question by examining Moody’s credit ratings for municipalities located within the state of Massachusetts. Focusing on a specific state helps us to avoid heterogeneity problems that have plagued prior studies employing multi-state data. Using panel data, and the ordered probit and ordered logit methodologies, our results demonstrate a significant negative relationship between unfunded liabilities and Moody’s credit ratings. Furthermore, the standardized coefficients in both models are close in magnitude indicating robustness of the relationship. These results have public policy implications for municipalities.

Keywords: Municipal credit ratings; ordered logit; pension plan liabilities. (search for similar items in EconPapers)
JEL-codes: G18 H20 H70 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:mfa:journl:v:23:y:2015:i:1&2:p:1-24

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