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Limits of Disclosure Regulation in the Municipal Bond Market

Author

Listed:
  • Ivan T. Ivanov

    (Federal Reserve Bank of Chicago, Research Division, Chicago, Illinois 60604)

  • Tom Zimmermann

    (Department of Econometrics and Statistics, University of Cologne, 50931 Cologne, Germany; and Centre for Financial Research, 50923 Cologne, Germany)

  • Nathan W. Heinrich

    (Board of Governors of the Federal Reserve System, Division of Research and Statistics, Washington, District of Columbia 20551)

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.

Suggested Citation

  • Ivan T. Ivanov & Tom Zimmermann & Nathan W. Heinrich, 2025. "Limits of Disclosure Regulation in the Municipal Bond Market," Management Science, INFORMS, vol. 71(10), pages 8452-8470, October.
    • Handle: RePEc:inm:ormnsc:v:71:y:2025:i:10:p:8452-8470
    DOI: 10.1287/mnsc.2022.02289
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