Limits of Disclosure Regulation in the Municipal Bond Market
Ivan T. Ivanov, Tom Zimmermann, Nathan W. Heinrich
Management Science · 2025 · Volume 71 · Issue 10
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. This paper was accepted by Victoria Ivashina, finance. Funding: T. Zimmermann has received financial support from the Deutsche Forschungsgemeinschaft under Germany’s Excellence Strategy [EXC2126/139083886]. Supplemental Material: The online appendices and data files are available at https://doi.org/10.1287/mnsc.2022.02289 .
Keywords
municipal bond pricing, disclosure regulation, private debt
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