Does regulatory enforcement improve continuing disclosure? The municipal securities market case of the Municipalities Continuing Disclosure Cooperation (MCDC) initiative
Journal of Public Budgeting, Accounting & Financial Management
ISSN: 1096-3367
Article publication date: 25 August 2021
Issue publication date: 9 March 2022
Abstract
Purpose
This 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/approach
We 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.
Findings
The 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 implications
The 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/value
This 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.
Keywords
Acknowledgements
The authors gratefully acknowledge the comments received from the editor and the two anonymous reviewers during the review process. Yulianti Abbas would like to acknowledge that this study was supported by the Sadli Foundation, Indonesia through its Sadli Endowed Professorship Award.
Data availability: Data are available from the public sources cited in the text.
Citation
Abbas, Y. and Johnson, C.L. (2022), "Does regulatory enforcement improve continuing disclosure? The municipal securities market case of the Municipalities Continuing Disclosure Cooperation (MCDC) initiative", Journal of Public Budgeting, Accounting & Financial Management, Vol. 34 No. 2, pp. 257-291. https://doi.org/10.1108/JPBAFM-03-2021-0041
Publisher
:Emerald Publishing Limited
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