Analyzing Changes in Municipal Bond Ratings: A Different Perspective

Publisher Website
Google Scholar
Abstract
Do variables that measure economic base diversification, market expansion, population growth, and energy endowment affect municipal bond ratings? To examine this question, we specify and test a linear probability model of changes in municipal bond ratings related to changes in these variables. Using county data for 49 urban areas for 1970 and 1981, we find that changes in each of the variables strongly influence changes in municipal bond ratings. The results suggest that municipal officials and investors can determine the credit condition of a municipality more accurately by using these variables than by using financial accounting variables. The results also indicate that the ratings can represent a unique, market evaluation of the success of local economic development efforts.