Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments October 26, 2021 erstellt
Beschreibung:
In this paper, we study how the political alignment between state governor party affiliation and counties affects yield spreads of municipal bonds issued by counties. Matching municipal bonds and gubernatorial election records at the county level, we present evidence that following close state-level elections, investors demand a higher yield spread if a county becomes politically misaligned with the state governor, and a lower yield spread if it becomes politically aligned with the state governor. The magnitude of the effect varies across bonds and county characteristics, longer term to maturity bonds, bonds backed by utility revenue and bonds issued by counties less dependent on state transfers are less sensitive to political alignment shock. Finally, we show that the changes in yield spread are correlated with changes in credit risk and are closely associated with changes in inter-governmental transfer