Abstract
This study addresses the value of municipal accounting information to the municipal bond market by examining the association between New York City (City) bond yields and published accounting data in comparison to the association between City yields and accounting data which have been adjusted to conform to generally accepted accounting principles (GAAP). The report of the Securities and Exchange Commission (SEC) investigation that followed New York City's default in 1975 (SEC 1977) charged that the City's (non-GAAP) financial statements obscured the City's true financial condition and misled statement users, including general obligation bond investors. The results of my study indicate that whereas New York City's accounting practices significantly overstated revenues and understated expenditures, the primary bond market's assessment of the relative risk of the City's general obligation bonds was consistent with the adjusted (GAAP) revenue and expenditure numbers which were not disclosed in the City's financial statements.
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