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Does Compliance Auditing Affect Bond Yields? Evidence from the Municipal Bond Market

Bethany A. Courson

The Accounting Review2026https://doi.org/10.2308/tar-2022-0210article
FT50UTD24AJG 4*ABDC A*
Weight
0.50

Abstract

I use a unique setting in the municipal bond market to examine the impact of compliance auditing on bond yields. SEC Rule 15c2-12 requires bond issuers to provide annual financial and operating disclosures to investors over the life of the bonds. Due to concerns of noncompliance, Louisiana passed a state law requiring auditors to test for compliance with Rule 15c2-12. I find that bond yields in the municipal bond market decrease by 21 basis points after the audit law for previously noncompliant issuers in Louisiana. I find similar results when I separately examine the primary and secondary markets. I also find that previously noncompliant issuers file 75.2 percent more annual disclosures after the audit law, suggesting that the audit law improved compliance with Rule 15c2-12. Overall, my findings inform policymakers and regulators on the role of auditing over compliance with disclosure regulation as a mechanism to protect investors. JEL Classifications: G28; H74; K22; M42.

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https://doi.org/https://doi.org/10.2308/tar-2022-0210

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@article{bethany2026,
  title        = {{Does Compliance Auditing Affect Bond Yields? Evidence from the Municipal Bond Market}},
  author       = {Bethany A. Courson},
  journal      = {The Accounting Review},
  year         = {2026},
  doi          = {https://doi.org/https://doi.org/10.2308/tar-2022-0210},
}

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