Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/279822 
Year of Publication: 
2023
Series/Report no.: 
New Working Paper Series No. 338
Publisher: 
University of Chicago Booth School of Business, Stigler Center for the Study of the Economy and the State, Chicago, IL
Abstract: 
We study the effect of official statement textual complexity on municipal borrowing costs (yield) through the clientele channel. Theoretically, complexity reduces signal quality for unsophisticated investors, potentially increasing yield. We provide causal evidence of an economically significant complexity-yield premium that is especially large for issues with greater tax-induced exogenous demand from unsophisticated investors or less complementary information from rating agencies. We decompose complexity into multiple topics and find that "legal complexity" matters most for the complexityyield premium. Despite this premium, complexity has been trending upward across all credit categories. This trend is attributable to increased regulatory enforcement from the SEC.
Subjects: 
municipal bonds
disclosure
complexity
textual analysis
clientele
JEL: 
G12
G14
G18
H74
Document Type: 
Working Paper

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