IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v72y2026i6p5048-5067.html

Polluting Public Funds: The Effect of Environmental Regulations on Municipal Bonds

Author

Listed:
  • Akshaya Jha

    (H. John Heinz III College, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213; and National Bureau of Economic Research, Cambridge, Massachusetts 02138)

  • Stephen A. Karolyi

    (Costello College of Business, George Mason University, Fairfax, Virginia 22030)

  • Nicholas Z. Muller

    (National Bureau of Economic Research, Cambridge, Massachusetts 02138; and Tepper School of Business and Department of Engineering and Public Policy, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213)

Abstract

We present two findings on how environmental policy uncertainty impacts municipal bond returns. First, yields increase after a new pollution standard is proposed but decrease after this standard is finalized. Second, after annual announcements of compliance status, yields fall for counties that remain in compliance but increase for newly noncompliant counties. We present suggestive evidence linking these short-run municipal bond market reactions to long-run changes in pollution and housing prices. Our findings suggest that increases in either regulatory stringency or uncertainty over future environmental policy increase the cost of municipal debt raised to fund schools, hospitals, and critical infrastructure.

Suggested Citation

  • Akshaya Jha & Stephen A. Karolyi & Nicholas Z. Muller, 2026. "Polluting Public Funds: The Effect of Environmental Regulations on Municipal Bonds," Management Science, INFORMS, vol. 72(6), pages 5048-5067, June.
    • Handle: RePEc:inm:ormnsc:v:72:y:2026:i:6:p:5048-5067
    DOI: 10.1287/mnsc.2023.02340
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.2023.02340
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.2023.02340?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:72:y:2026:i:6:p:5048-5067. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.