The GFOA Certificate Revisited: Excellence in Financial Reporting and the Costs and Benefits of High Disclosure

Abstract

We examine the relationship between disclosure as evidenced by the possession of the GFOA certificate for excellence in financial reporting (COA) and the cost of debt in the municipal bond market. Using a large database of tax-exempt municipal bonds issued by cities during 1994-2003, we find a statistically and economically significant relationship showing that disclosure reduces borrowing costs. We also find that compensation for city administrators and chief financial officers of cities attaining the COA is significantly higher than compensation for officials in cities without the COA. Overall, cities derive financial benefits that exceed the costs of obtaining the COA.