GASB Mandatory Disclosure Rules and Municipal Bond Yield Spreads

The implementation of the Government Accounting Standards Board's Statement 45 mandates disclosure of other post-employment benefits in a standardized format. The mandate provides an opportunity to analyze non-information impacts of mandatory disclosures, as key components of the information were already publicly available. We find that this mandate is associated with a significant 15 and 73 basis-point increase in yield spreads among tax-exempt and taxable bonds, respectively. This effect is particularly more pronounced for riskier bonds — non-rated and longer maturity taxable bonds. However, states that do not follow the GASB 45 recommendation of prefunding the OPEB obligations face a greater increase in their yield spreads