The Impact of State Disclosure Requirements on Municipal Yields

Municipal bonds are not subject to federal registration requirements imposed upon corporate securities issuers. Instead, each state determines whether municipal issuers must disclose any information and, if disclosure is required, what type of information must be provided. This research examines whether the net interest cost on competitively sold municipals differs across issues in states subject to full disclosure versus states that do not require disclosure. Results indicate that there is no evidence that disclosure requirements screen out risky issues and that net interest cost for non rated bonds is, on average, approximately 14 basis points less in states with disclosure requirements than in states with no mandatory disclosure. Disclosure is found to have the most significant effect on nonrated bonds.