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After the financial crisis of 2007-2009, only one municipal bond insurer, Assured Guaranty Municipal Corporation was left in the market to underwrite insurance policies on newly issued municipal bonds. In 2010 and 2011, Standard & Poor's downgraded AGM-insured municipal bonds, first from AAA to AA+ and, then, from AA+ to AA-. In 2012 and 2013, respectively, two new bond insurers entered the market. One of the new insurers was organized as a mutual insurance company, whereas previous municipal bond insurers were organized as corporations. Finally, in 2014, the bond ratings of bonds insured by AGM and another new insurer were upgraded by S&P from AA- to AA and a third new insurer entered the market with a rating of AA-. Using a sample of 1,166 insured municipal bonds issued from 2010 to 2016, this paper finds that insurance premiums did not materially change when AGM-insured bonds were downgraded by S&P in 2011; however, they did significantly decline in 2012 and afterward as new insurers entered the market. [ABSTRACT FROM AUTHOR]

ABSTRACT Technical indicators of individual investor behavior using odd-lot short selling have been widely studied. Contrarians employ these indicators in their investment strategies because they feel that individual investors who [...]

The purpose of this article is to examine the changes that took place in the Texas municipal bond insurance market from the fall of 2010 through the summer of 2016. The study analyzes bonds with credit ratings of A1/A+ through Baa3/BBB-. These bonds could receive a credit enhancement through the purchase of insurance during the study period. The findings suggest that the probability of being insured is dependent upon characteristics of the bond issue, market conditions, characteristics of the bond issuer, the S&P rating of the insured bonds, and bond insurance competition. These findings differ from an earlier study of insured municipal bonds over the period from 1989 to 1992. [ABSTRACT FROM AUTHOR]

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State and local governments are not subject to Securities and Exchange Commission (SEC) regulations requiring compliance with generally accepted accounting principles (GAAP). It was only in 1980 that Standard & Poor's issued a policy statement indicating a failure to conform with GAAP would be considered a negative factor in establishing municipal bond ratings. Until May 1986, governmental GAAP was not even enforceable under Rule 203 of the AICPA code of ethics. While some state governments regulate the accounting practices of their local governments, the states themselves are exempt from all accounting regulations. In this unregulated environment, differential levels of financial disclosure by the states are observed. Differential disclosure is presumably the outcome of an economic decision based on the conventional equalization of the marginal costs and benefits of GAAP compliance. In this paper, we try to estimate the magnitude of one potential benefit accruing from differential GAAP compliance--the interest cost savings on general obligation bonds. Our study suggests the bond markets are "informationally efficient" in the sense that bond prices incorporate the effects of differential GAAP compliance. [ABSTRACT FROM AUTHOR]

Just before July 2013, only two insurers, Build America Mutual Assurance Company (BAM) and Assured Guaranty Municipal Corporation (AGM, a subsidiary of Assured Guaranty Ltd.) were providing new municipal debt insurance. On July 22, 2013, Assured Guaranty Ltd. announced the launching of the newly formed Municipal Assurance Corporation (MAC). Standard & Poor's Corporation rated BAM-insured bonds as AA from 2013 through 2015 and rated AGM- and MAC-insured bonds as AA- before upgrading them to AA on March 18, 2014. Moody's Investors Service rated AGM-insured bonds as A2 throughout this period but did not rate BAM- and MAC-insured bonds. Findings suggest that during the pre-upgrade period, AGM-insured bonds had the highest interest costs, followed by MAC-insured bonds and BAM-insured bonds. After the rating upgrade, the interest cost of AGM-insured issues is no longer statistically different from BAM-insured issues; however, MAC-insured bonds have a lower interest cost than AGM- and BAMinsured bonds. [ABSTRACT FROM AUTHOR]

This paper examines the association of the level of funding of city government pension fund liabilities with ( I) the cost of municipal bond insurance and (2) the credit rating awarded on municipal debt, using data disclosed under Statement No. 34 of the Governmental Accounting Standards Board (GASB 34) for insured general obligation debt issued by Texas cities. The analysis includes two different measures of pension underfunding to proxy for the level of funding. One of the measures is based on data from GASB 34. It finds that the level of pension funding is weakly related to the cost of municipal bond insurance and is strongly related to the credit rating on municipal debt. [ABSTRACT FROM AUTHOR]

This paper examines the pricing of municipal bond insurance---insurance generally paid for by the issuer that guarantees payment of principal and interest on newly issued bonds. In particular, it focuses on the factors that cause the premiums to vary from one municipality to another and from one bond issue to another. This study uses a unique municipal bond database that includes the insurance premium paid by issuers of municipal debt obligations in Texas. Our study focuses on the determinants of bond insurance premiums for one type of municipal bond--city general obligation bonds, The paper finds that municipal bond insurance premiums conform quite closely to the predictions of a theoretical model. Those factors that lead to an implied higher risk for the insured and their bond issues are associated with higher insurance premiums charged by the insurers. The paper also shows that competition among bond insurers affects bond insurance premiums. [ABSTRACT FROM AUTHOR]

In 1999, the Governmental Accounting Standards Board (GASB) adopted GASB Statement No. 34. This standard requires that governments capitalize their infrastructure as- sets. The standard allows a government to choose either to depreciate its infrastructure assets or to report them according to the modified approach." Under the modified approach, a government must preserve its infrastructure at its adopted condition. For governments that are in a weakened financial or political position, this requirement may be too taxing so they may opt to depreciate their infrastructure assets. The results of this study suggest that the decision to select the modified approach is related to factors that imply a stronger financial and political system-specifically, higher population growth, a higher grade for the management of infrastructure assets from The Government Performance Project, no use of revenue bonds backed by fuel and motor vehicle taxes, lower lane miles per capita of the state's highway system, and higher voter support for the current state governor. [ABSTRACT FROM AUTHOR]

State and local governments are exempt from the auditing regulations of the Securities and Exchange Commission (SEC). Nevertheless, state governments expend considerable resources on financial, legal compliance, and operational audits. The objective of this paper is to identify the relationships and incentives that motivate public sector auditing expenditures in the absence of SEC regulation. While we know of no well-developed theory which specifies the determinants of governmental audit budgets, the discussion of underlying relationships and the empirical regularities demonstrated in this study could be useful in developing such a theory. [ABSTRACT FROM AUTHOR]

State supervision of local government budgeting and borrowing practices has the objective "budgetary financial distress" and restricting the use of debt financing to only legitimate purposes. Our empirical evidence suggests that State supervision is indeed systematically associated with lower borrowing costs. This is one area where greater State intrusion may actually provide significant benefits to local governments. [ABSTRACT FROM AUTHOR]

The establishment of the Governmental Accounting Standards Board (GASB) ushered in a new era in the regulation of governmental accounting. The promotion of uniform accounting standards for all state and local governments and the adoption of more effective regulations in certain areas, such as pension reporting, may lead to lower borrowing costs for governmental units. The GASB should, however, be concerned not only with the potential benefits associated with any new regulations but also with the related costs of implementing these regulations. [ABSTRACT FROM AUTHOR]

This paper examines the fiscal determinants of net interest cost on new State general obligation bond issues. Our empirical results indicate that actual fiscal performance does have information content for States' borrowing costs beyond the information already impounded in bond ratings. [ABSTRACT FROM AUTHOR]

Although the goal of government is to maintain or improve citizens' well-being, governmental commitments are subject to fiscal constraints. Given constraints on resources, governments need to "live within their means" (GASB 1987, para. 59). Concepts Statement No. 1 (GASB 1987, para. 61) discusses the notion of interperiod equity (IPE), i.e., whether "current year revenues are sufficient to pay for the services provided that year." From a financial reporting perspective, the Board believes that the appropriate concept is that of "yearly balance" and that services rendered during the current year should be paid for by revenues raised during that year. The public economics literature (e.g., Aguilar et al. 1991; Mattoon and Testa 1991) suggests that the time horizon of public officials is longer than a single fiscal year and that taxes and spending are smoothed over a multi-period time frame. This literature indicates it would be unrealistic for governmental revenues and expenditures to be balanced each and every year. Despite the potentially wide disparity between a one-year and a multi-year budgeting perspective for governments, we are not aware of any extant research on the issue. This paper provides an empirical analysis of three interperiod equity-related performance measures for 40 large cities over a 35-year period in order to examine which budgeting perspective seems, in fact, to exist. We use a partial adjustment model under the hypothesis that cities' performance measures tend to move toward governmental norms in a manner similar to Lev's (1969) findings for businesses. Our empirical results (1) are consistent with a multi-year budgeting horizon, (2) provide bench-marks for each of the three performance measures against which users of financial statements can compare governmental results, and (3) suggest that the speed of adjustment toward governmental norms (which varies across cities) could be useful to users of financial statements as a measure of a government's capacity to adapt and adjust to changing economic circumstances. [ABSTRACT FROM AUTHOR]

This article analyzes a study on an alternative capital budgeting procedure to the one found in most leading finance textbooks. The versions of the cost of capital are dependent upon the ratio of the market value of the firm's debt to its market value. The article contradicts the conclusion of the study by stating that its capital budgeting procedure does not yield different net present values for capital budgeting problems.