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Accounting restatements, governance and municipal debt financing

Author

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  • Baber, William R.
  • Gore, Angela K.
  • Rich, Kevin T.
  • Zhang, Jean X.

Abstract

We find that mean municipal debt costs are greater following financial restatement disclosures. Comparisons of the relative use of municipal debt, and of the use of unsecured versus secured debt, corroborate that financial restatements increase the cost of municipal debt financing. Additional analyses indicate that adverse consequences of restatements are mitigated by strong audit oversight and by provisions that encourage direct voter participation in the governance process. The evidence supports the use of restatements as a summary measure of financial reporting quality in the municipal context and informs thinking about auditor and voter oversight in the municipal financial reporting process.

Suggested Citation

  • Baber, William R. & Gore, Angela K. & Rich, Kevin T. & Zhang, Jean X., 2013. "Accounting restatements, governance and municipal debt financing," Journal of Accounting and Economics, Elsevier, vol. 56(2), pages 212-227.
    • Handle: RePEc:eee:jaecon:v:56:y:2013:i:2:p:212-227
    DOI: 10.1016/j.jacceco.2013.08.003
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    2. Ying L. Compton & Angela K. Gore & Susan L. Kulp, 2017. "Compensation design and political risk: the case of city managers," Review of Accounting Studies, Springer, vol. 22(1), pages 109-140, March.
    3. Steven DeSimone, 2018. "Internal Audit and Financial Reporting Quality in the Public Sector," Working Papers 1802, College of the Holy Cross, Department of Economics.
    4. Lin, Xiaowei & Chen, Sicen & Cheng, Xin & Wang, Jinmei, 2022. "Local government audit and municipal debt risk: Evidence from audit reform in China," Finance Research Letters, Elsevier, vol. 50(C).
    5. Ivan T. & Tom Zimmermann, 2021. "The "Privatization" of Municipal Debt," ECONtribute Discussion Papers Series 062, University of Bonn and University of Cologne, Germany.
    6. Junghack Kim & Bruce D McDonald & Jongmin Shon, 2022. "Does the charter form lead to lower borrowing costs? Examining the case of California local governments," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 93(1), pages 85-102, March.
    7. Nakhmurina, Anya, 2018. "Does Fiscal Monitoring Make Better Governments? Evidence from US Municipalities," Working Papers 284, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    8. Kabir, Humayun & Rahman, Asheq, 2016. "The role of corporate governance in accounting discretion under IFRS: Goodwill impairment in Australia," Journal of Contemporary Accounting and Economics, Elsevier, vol. 12(3), pages 290-308.
    9. Pei Li & Leo Tang & Bikki Jaggi, 2018. "Social Capital and the Municipal Bond Market," Journal of Business Ethics, Springer, vol. 153(2), pages 479-501, December.
    10. Kabir, Humayun & Su, Li & Rahman, Asheq, 2020. "Firm life cycle and the disclosure of estimates and judgments in goodwill impairment tests: Evidence from Australia," Journal of Contemporary Accounting and Economics, Elsevier, vol. 16(3).
    11. Anh Viet Pham & Mia Hang Pham & Cameron Truong, 2022. "CEO cultural heritage and the pricing of audit services," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(1-2), pages 181-214, January.
    12. Cuny, Christine, 2016. "Voluntary disclosure incentives: Evidence from the municipal bond market," Journal of Accounting and Economics, Elsevier, vol. 62(1), pages 87-102.
    13. 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.
    14. John “Jack” Castonguay & Sean Stein Smith, 2020. "Digital Assets and Blockchain: Hackable, Fraudulent, or Just Misunderstood?†," Accounting Perspectives, John Wiley & Sons, vol. 19(4), pages 363-387, December.
    15. CAO, Ning & McGUINNESS, Paul B. & XI, Chao, 2021. "Does securities enforcement improve disclosure quality? An examination of Chinese listed companies' restatement activities," Journal of Corporate Finance, Elsevier, vol. 67(C).
    16. Chen, Yangyang & Murgulov, Zoltan & Rhee, S. Ghon & Veeraraghavan, Madhu, 2016. "Religious beliefs and local government financing, investment, and cash holding decisions," Journal of Empirical Finance, Elsevier, vol. 38(PA), pages 258-271.

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    More about this item

    Keywords

    Accounting restatements; Municipal governance; Municipal debt;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration

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