How does public information access shape government financing cost? Evidence from FOIA and municipal bond

Abstract

In the United States, each state has implemented an information openness law, commonly known as the Freedom of Information Act (FOIA), granting any person (or any "citizen" for some states) the right to request access to records from any government branch. However, the level of government transparency offered under the FOIA varies across states and over time. By reducing information asymmetry between municipal bond investors and the municipal government and facilitating the public monitoring on government, I document that the municipal borrowing cost is lowered after the government transparency offered under the FOIA improves. I employ staggered treatments to FOIA revisions and a stacked regression design and find when the general public gain easier access to government records following FOIA revisions, municipal borrowing costs, measured by offering yield and tax-adjusted offering spread, decrease significantly. The effect is more pronounced in counties with lower level of social capital, lower education level, or lower newspaper coverage, consistent with the notion that the information asymmetry is reduced more for less transparent government, and that government transparency offered under the FOIA substitutes community trust. The lower municipal bond yield also holds in the secondary market. And in both primary and secondary markets, the effect is present for institutional and retail investors, but the reduction is less for institutional investors. my robustness tests support the effect is causal and not driven by underlying macroeconomic conditions. Overall, this thesis documents the benefits of FOIA in public finance and contributes to literatures of municipal bonds and public information acquisition.