Local governments default on bonds when they fail to comply with the monetary and nonmonetary aspects of the debt contracts. Analyses of defaults have relied on reports from credit rating agencies, which include only rated bonds undergoing monetary defaults. Using a unique and comprehensive dataset of defaults, we examine all general‐purpose government defaults from 2009 to 2015 and find defaults to be more common than previously reported. We present a typology of defaults and characteristics of defaulted bonds. Most defaults occur among nongeneral obligation bonds and did not affect the yield of future, unrelated credits of the same issuer, providing support to the credit segmentation hypothesis.

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This paper examines whether the change in federal deductibility of state and local sales taxes initiated by the American Jobs Creation Act of 2004 affected the distribution of state and local level revenue sources. Using data from the 2000-2008 Census Bureau State Government Tax Collections Survey, Annual Surveys of State and Local Government Finances, and Censuses of Governments, we find that federal sales tax deductibility led states to increase sales tax revenue per capita, and decrease individual income and corporate tax revenue per capita and decrease property taxes as a share of total taxes. We do not, however, find any statistically significant impacts on tax sources at the local level.

PurposeThis paper analyzes the impact of increased federal regulatory enforcement from the SEC's Municipalities Continuing Disclosure Cooperation (MCDC) initiative on municipal debt issuers continuing disclosure practices.Design/methodology/approachWe analyze the changes in continuing disclosure practices by estimating a series of difference-in-differences regressions based on variables representing issuers' changes in regulatory risk after the MCDC. The continuing disclosure data are hand-collected for 827 cities over a seven-year period.FindingsThe empirical findings indicate that increased regulatory enforcement has a significant impact on continuing disclosure compliance. We find increased enforcement has no impact on issuers that already have a higher probability of being monitored by federal regulators. We also find that an increase in continuing disclosure compliance does not automatically increase continuing disclosure timeliness.Practical implicationsThe MCDC lacks monetary penalties for noncompliant bond issuers and no direct regulatory consequences exist for untimely disclosure. Our findings suggest that regulatory enforcement should be followed by adequate sanctions to emphasize the credibility of the enforcement threat and the SEC should consider requiring bond issuers to commit to the timely disclosure of significant information in offering documents.Originality/valueThis paper extends prior studies by analyzing regulatory risk in the market, and the ability of regulation to reduce disclosure compliance deficiencies in the municipal market. By focusing on the MCDC, this study is able to disentangle the impact of regulatory enforcement from the changes in accounting regulation.

PurposeThe coronavirus disease 2019 (COVID-19) outbreak in the first quarter of 2020 has caused a severe decline in stock markets worldwide. While prior studies in developed markets found that workplace closure can negatively impact the capital market (e.g. Ozili and Arun, 2020), lesser is known about how it impacts emerging capital markets, which may have different characteristics and behaviour (Harjoto et al., 2021). Hence, this study seeks to uncover stock performance around workplace closure dates of firms incorporated in ASEAN countries and investigates the role of accounting fundamentals in mitigating workplace closure policy's effects on stock performances.Design/methodology/approachUsing an event study methodology, the authors measure the cumulative abnormal returns (CARs) around workplace closure dates. The authors then use cross-sectional analysis to analyse whether the accounting fundamentals, specifically profitability, cash flow, and leverage, are associated with the CAR. This cross-sectional study involves 1,720 firms that are incorporated in the ASEAN countries.FindingsThis analysis indicates that, on average, ASEAN capital markets react negatively to workplace closure policies. The authors then find that the CARs around workplace closure dates are positively associated with the current ratios and are negatively associated with long-term debt ratios. This study’s results thus indicate that firms with a higher liquidity and a higher solvency experience a less adverse impact of the COVID-19 pandemic than other firms. The authors also find that the associations are more robust for (1) firms in industries more affected by COVID-19 and (2) firms located in countries with more severe cases. Additionally, contrary to this study’s expectation, the authors do not find meaningful associations between CARs around workplace closure dates and firms' cash flow from operation and profit respectively. This study’s results suggest that investors view prior performances related to firms' ability to generate operating cash flow and profit as less relevant to measure firm performance around the workplace closure event.Research limitations/implicationsThis study’s results contribute to studies examining fundamental accounting roles during the COVID-19 era, specifically in emerging economies. The findings are critical for investors in understanding the company fundamentals associated with stock price performance in emerging markets during the recent health-related crisis.Originality/valueMost studies analysing cross-sectional differences in stock returns during the COVID-19 era focus on industry-level differences and use observations from developed markets (Sinagl, 2020; Ramelli and Wagner, 2020). Studies using firm-level analysis in emerging markets are still limited. The authors expand prior studies by using firm-level analysis that spans six countries in ASEAN.