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Municipal financing costs following disasters

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  • Bourdeau-Brien, Michael
  • Kryzanowski, Lawrence

Abstract

This paper documents the response of the municipal bond market to major floods, and assesses several explanations for this response. The results show that bonds sold following floods exhibit yields about 7% higher than bonds sold at other times. Issuance costs, selection bias, and liquidity costs do not explain the higher yields, nor does credit risk appear likely to justify a large proportion of the increase. Consistently with a behavioral explanation, the abnormal yields fade away over time and are limited to first-time disaster counties, where the floods are least expected.

Suggested Citation

  • Bourdeau-Brien, Michael & Kryzanowski, Lawrence, 2019. "Municipal financing costs following disasters," Global Finance Journal, Elsevier, vol. 40(C), pages 48-64.
    • Handle: RePEc:eee:glofin:v:40:y:2019:i:c:p:48-64
    DOI: 10.1016/j.gfj.2018.10.004
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    1. Malik, Ihtisham A. & Chowdhury, Hasibul & Alam, Md Samsul, 2023. "Equity market response to natural disasters: Does firm's corporate social responsibility make difference?," Global Finance Journal, Elsevier, vol. 55(C).

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    More about this item

    Keywords

    Floods; Natural disasters; Investor behavior; Municipal bonds; Public finance; Market segmentation;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • G1 - Financial Economics - - General Financial Markets
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • R5 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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