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Local religious beliefs and municipal bond market outcomes
Author(s) -
Abakah Alex Annan
Publication year - 2019
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12271
Subject(s) - issuer , bond , municipal bond , population , bond valuation , monetary economics , economics , bond market , politics , business , finance , law , political science , demography , sociology
This study investigates whether religion‐induced risk aversion affects municipal bond market outcomes from 1990 to 2017. The results indicate that local government bonds issued from U.S. counties with a high Catholic‐to‐Protestant population ratio have lower credit risk ratings and lower yield spreads, and are less likely to have credit enhancement. The results stand up to additional tests. I control for issuer's county political party affiliation and state term limits, and continue to find significant effects. The effects are not driven by the issuer's county fiscal policies. Furthermore, the effects persist when I use an alternate specification that controls for omitted factors that are time invariant. Overall, my evidence suggests that a bond issuer's religion‐induced risk aversion plays a significant role in the pricing of local government bonds.