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An International Meeting of American Accounting
Association
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The Role and Impact of Types of Disclosure and Other Determinants of Borrowing Costs in the Market for Taxable Municipal Bonds |
Kenneth N. Daniels
Virginia Commonwealth University
Donald R. Deis
Texas A&M - Corpus Christy
Jayaraman Vijayakumar
Virginia Commonwealth University
Abstract: Using a large sample of taxable municipal bonds issued during the period 1987-2005, we analyze the impact of different disclosure mechanisms and determinants of borrowing costs for taxable municipal bonds. In particular, we examine if possessing the GFOA Certificate of Excellence in Financial Reporting (COE), requiring mandatory usage of GAAP for preparing financial statements, and state mandated disclosure requirements for debt issuance impacts borrowing costs. Of these three types of disclosure, we find that only required mandatory usage of GAAP significantly lowers borrowing costs to issuers. Surprisingly, possessing the COE does not seem to directly impact borrowing costs. In addition to examining traditional market, issue and issuer characteristics, we show that commercial bank managed issues have lower borrowing costs. Also, results show that taxable municipals while higher in borrowing costs compared to tax-exempts, incur lower borrowing costs in comparison to corporate