Does financial disclosure matter? GASB 45 and municipal borrowing costs

Abstract

ABSTRACT Financial disclosure is crucial to achieve fiscal transparency and government accountability. In 2004, the Governmental Accounting Standards Board (GASB) issued Statement No. 45 to require the disclosure of information about other postemployment benefits (OPEB). Using a panel of U.S. counties and the bonds they issued between 1999 and 2012, this paper examines the effects of GASB 45 on municipal borrowing costs. GASB 45 increases borrowing costs of county governments, with the effects decreasing over time. GASB 45 has a larger effect on borrowing costs of county governments issuing bonds of lower credit quality and adopting the generally accepted accounting standards (GAAP).