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Costs of Natural Disasters in Public Financing

Author

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  • Bennett, Benjamin

    (Ohio State University (OSU) - Department of Finance)

  • Wang, Zexi

    (University of Bern)

Abstract

We document the dynamics of primary municipal bond (muni) markets after severe natural disasters. We find that yields of muni issuance increase significantly in the first three months after disasters. Disasters have little effect on issuers’ credit risk but can temporarily reduce investors’ demand, which is consistent with the salience theory of choice (Bordalo, Gennaioli, and Shleifer, 2012). Natural disasters significantly increase the proceeds from muni issuances. Reacting to the larger financing costs, muni issuers use shorter maturity and a less complex structure to offset the larger financing costs. The higher yields after disasters provide speculation opportunities.

Suggested Citation

  • Bennett, Benjamin & Wang, Zexi, 2019. "Costs of Natural Disasters in Public Financing," Working Paper Series 2019-9, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    • Handle: RePEc:ecl:ohidic:2019-9
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    JEL classification:

    • G19 - Financial Economics - - General Financial Markets - - - Other
    • G40 - Financial Economics - - Behavioral Finance - - - General

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