Should More Local Governments Purchase a Bond Rating?

We investigate whether issuers that choose to forgo a bond rating suffer an interest cost penalty greater than the cost of the rating. We use estimated ratings provided by Moody’s Investor Service to proxy for what the rating would have been if it had been purchased. We find that the primary factors associated with an issuer’s decision to purchase a rating are the rating expected by the issuer and the extent to which an issue is marketed locally. After controlling for self-selection bias, we find that the issuers that forgo a rating do not suffer an interest cost penalty.

Publication Information
Article Title: Should More Local Governments Purchase a Bond Rating?
Journal: Review of Quantitative Finance and Accounting (Jan, 2009)
Author(s): Allen, Arthur C;  Sanders, George;  Dudney, Donna
Researcher Information
Allen, Arthur C
Allen, Arthur C
Associate Professor
  • Financial Accounting
  • Governmental and Nonprofit Accounting
HLH 445 J
P.O. Box 880488
University of Nebraska-Lincoln
Lincoln, NE 68588-0488, USA
Phone: (402) 472-3275
Fax: (402) 472-4100
Dudney, Donna
Dudney, Donna
Associate Dean of Undergraduate Curriculum and Programs
  • Financial Institutions
  • Financial Markets & Investing
  • Managerial Economics
Office of the Dean
HLH 301 G
P.O. Box 880405
University of Nebraska-Lincoln
Lincoln, NE 68588-0405, USA
Phone: (402) 472-5695
Fax: (402) 472-5180