Abstract
This paper investigates the determinants of municipal general obligation bond ratings. It offers an expanded econometric framework for analyzing this problem and contrasts various econometric specifications. We develop a method to correct for sample selection bias when the dependent variable is an ordered categorical variable and to correct for simultaneity when the ordered categorical variable enters as an explanatory variable into the decision equation. The results suggest that correcting for sample selection bias and simultaneity in bond rating analysis can affect the results. We find that the volume of debt, location, and city size are significant determinants of the decision to obtain a rating and a mix of economic, socioeconomic, debt, location, and city size variables are the most significant determinants of the rating.
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