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Municipal Credit Ratings and Unfunded Pension Liabilities: New Evidence?

Author

Listed:
  • 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)

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.

Suggested Citation

  • Fahad Alshathri & J. Richard Aronson & Nandkumar Nayar2, 2015. "Municipal Credit Ratings and Unfunded Pension Liabilities: New Evidence?," Capital Markets Review, Malaysian Finance Association, vol. 23(1&2), pages 1-24.
    • Handle: RePEc:mfa:journl:v:23:y:2015:i:1&2:p:1-24
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    More about this item

    Keywords

    Municipal credit ratings; ordered logit; pension plan liabilities.;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General

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