Purpose – In this study, we examine regulated public accessibility to municipalities’ financial reports and bond interest cost. In particular, we examine whether there is information content in a component of a constrained filing period that is useful to municipal bond market participants. The component of a filing period that we focus on is the period of time between an audit report date and a regulated public accessibility date.
Design/methodology/approach – To explore our research question, we collect a sample of observations from municipalities that: (a) are required to post annual/audit financial reports on a centralized state-level repository that includes a “transparent” date stamp on when reports are made publicly available and (b) have issued general obligation bonds. Our sample is limited to one observation per municipality. The sample period is 2006 to 2019. In terms of approach, we use an Ordinary Least Square (OLS) regression model to empirically test whether the time period between municipalities’ audit report date and state-required repository filing date is associated with general obligation bond interest cost.
Findings – We find support for the idea that there is information content in a component of a constrained filing period. In particular, we hypothesize and find a positive association between the time period between an audit report date and a state filing date and general obligation bond interest cost. Seemingly, this component of time may provide something unique or not available in other components of a constrained filing period (e.g., the fiscal year-end date to the audit report date). In post hoc analyses, we also find that both components of the constrained filing period in our setting (i.e., the audit report date to state filing date and the fiscal year-end date to audit report date) need to be considered for either of the components to be significant. Moreover, although both components are necessary, the audit report date to state filing date component appears to have a slightly stronger association (in terms of statistical significance) with general obligation bond interest costs.
Research limitations – To our knowledge, Illinois is the only state that provides a date stamp on when municipalities’ financial information is made publicly available on a centralized repository. As such we focus on municipalities in Illinois. While this increases the internal validity of our research, it potentially limits generalizability across other states. Also, as a reflection of the sample constraint, the number of observations in our study is relatively small. As part of post hoc analyses, we take a closer look at our sample, model, and variables used to test our hypothesis.
Practical implications – For stakeholders, each component of a constrained filing period may provide unique information. For example, the time period between an audit report date and a regulated filing date may send a positive signal about the quality of financial management to investors. For regulators, requiring some sort of centralized public access to municipal financial reports that have transparent time constraints may help states provide stronger governance and help lower municipalities’ borrowing costs.
Originality – We use a novel approach (with the Illinois date stamp filing information) to examine our research question. Most prior research has often relied on an assumption that the time between fiscal year-end and the audit report date is the component of time that provides useful information to investors (e.g., Henke and Maher 2016). In our setting, we explore and find that a component of a constrained filing time period (i.e., the date from an audit filing to a required public accessibility filing) may also provide impactful information to investors
