Accounting Standardization and Separation in the Municipal Debt Market: Evidence from GASB 34

Governmental Accounting Standards Board Statement No. 34 (GASB 34, 1999) standardized financial reporting and disclosure requirements for U.S. state and local governments. We interpret debt issuing patterns surrounding GASB 34 implementation as evidence of strategic behavior by governments in anticipation of GASB 34 consequences. Specifically, governments that expected more favorable post-GASB 34 evaluations by municipal bond investors delayed new uninsured debt issues until after, whereas governments that expected less favorable evaluations accelerated debt issues to before, GASB 34 information became publicly available. Governments expecting favorable consequences were more likely than governments expecting adverse consequences to substitute away from insured debt and toward uninsured debt, and to choose new debt financing rather than alternative financing sources following GASB 34. These findings are consistent with the notion that expectations about GASB 34 consequences were realized, and that standardization created through GASB 34 facilitated separation in the municipal debt market. Data Availability: Data are from publicly available sources identified in the manuscript. JEL Classifications: G18; H74; M48.