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When knowledge is power: Evidence from the municipal bond market

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  • Cuny, Christine

Abstract

I investigate whether access to fundamental information enhances retail investors’ bargaining power, reducing the premium that small municipal bond investors pay over large investors. I find a reduction in this small trade premium after the introduction of an online disclosure repository that lowers retail investors’ information acquisition costs. This finding is limited to issuers whose disclosures are disseminated through the repository. The finding is pronounced for issuers that impose high information acquisition costs on investors ex-ante and those that exhibit high disclosure quality ex-post. These results suggest that as investors’ information sets align, so does their bargaining power with dealers.

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  • Cuny, Christine, 2018. "When knowledge is power: Evidence from the municipal bond market," Journal of Accounting and Economics, Elsevier, vol. 65(1), pages 109-128.
    • Handle: RePEc:eee:jaecon:v:65:y:2018:i:1:p:109-128
    DOI: 10.1016/j.jacceco.2017.11.002
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    References listed on IDEAS

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    Cited by:

    1. Meng Gao & Jiekun Huang & Itay Goldstein, 2020. "Informing the Market: The Effect of Modern Information Technologies on Information Production," The Review of Financial Studies, Society for Financial Studies, vol. 33(4), pages 1367-1411.
    2. Hsien-Yi Chen & Sheng-Syan Chen, 2023. "Can credit default swaps exert an enduring monitoring influence on political integrity?," Review of Quantitative Finance and Accounting, Springer, vol. 60(2), pages 445-469, February.
    3. Ivan T. Ivanov & Tom Zimmermann & Nathan Heinrich, 2022. "Limits of Disclosure Regulation in the Municipal Bond Market," ECONtribute Discussion Papers Series 186, University of Bonn and University of Cologne, Germany.
    4. Stefan J. Huber & Chongho Kim & Edward M. Watts, 2024. "Earnings News and Over‐the‐Counter Markets," Journal of Accounting Research, Wiley Blackwell, vol. 62(2), pages 701-735, May.
    5. Jacquelyn R. Gillette & Delphine Samuels & Frank S. Zhou, 2020. "The Effect of Credit Ratings on Disclosure: Evidence from the Recalibration of Moody's Municipal Ratings," Journal of Accounting Research, Wiley Blackwell, vol. 58(3), pages 693-739, June.
    6. Yulianti Abbas, 2022. "Financial statement timeliness and bond‐price dispersion in the municipal market," Public Budgeting & Finance, Wiley Blackwell, vol. 42(1), pages 66-97, March.
    7. Cheng, Stephanie F. & De Franco, Gus & Lin, Pengkai, 2023. "Marijuana liberalization and public finance: A capital market perspective on the passage of medical use laws," Journal of Accounting and Economics, Elsevier, vol. 75(1).
    8. Meng Gao & Jiekun Huang & Itay GoldsteinEditor, 2020. "Informing the Market: The Effect of Modern Information Technologies on Information Production," Review of Finance, European Finance Association, vol. 33(4), pages 1367-1411.
    9. Cornaggia, Kimberly & Hund, John & Nguyen, Giang, 2022. "Investor attention and municipal bond returns," Journal of Financial Markets, Elsevier, vol. 60(C).
    10. Lang (Kate) Yang, 2022. "Fiscal transparency or fiscal illusion? Housing and credit market responses to fiscal monitoring," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(1), pages 1-29, February.
    11. Angela K. Gore & Yuan Ji & Susan L. Kulp, 2023. "Do Governments Hide Resources from Unions? The Influence of Public Sector Unions on Reported Discretionary Fund Balance Ratios," Journal of Accounting Research, Wiley Blackwell, vol. 61(5), pages 1735-1770, December.
    12. Christine Cuny & Omri Even‐Tov & Edward M. Watts, 2021. "From Implicit to Explicit: The Impact of Disclosure Requirements on Hidden Transaction Costs," Journal of Accounting Research, Wiley Blackwell, vol. 59(1), pages 215-242, March.
    13. Lu, Runjing & Ye, Zihan, 2023. "Roe v. Rates: Reproductive Healthcare and Public Financing Costs," SocArXiv 7t5jz, Center for Open Science.
    14. deHaan, Ed & Li, Jiacui & Watts, Edward M., 2023. "Retail bond investors and credit ratings," Journal of Accounting and Economics, Elsevier, vol. 76(1).
    15. Farrell, Michael & Murphy, Dermot & Painter, Marcus & Zhang, Guangli, 2023. "The complexity yield puzzle: A textual analysis of municipal bond disclosures," Working Papers 338, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    16. Raphael Duguay & Thomas Rauter & Delphine Samuels, 2023. "The Impact of Open Data on Public Procurement," Journal of Accounting Research, Wiley Blackwell, vol. 61(4), pages 1159-1224, September.
    17. Stephanie F. Cheng, 2021. "The Information Externality of Public Firms’ Financial Information in the State‐Bond Secondary Market," Journal of Accounting Research, Wiley Blackwell, vol. 59(2), pages 529-574, May.
    18. Jaskowski, Marcin & Rettl, Daniel A., 2023. "Information acquisition costs and credit spreads," Journal of Banking & Finance, Elsevier, vol. 149(C).

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    More about this item

    Keywords

    Dealer markets; Municipal debt; Information asymmetry; Asymmetric bargaining power; Dissemination;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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