Does accrual information impact municipal bond prices? Evidence from Japan using AI

Abstract

This study aims to empirically determine the extent to which accrual-based information disclosed by local governments contributes to the pricing of municipal bonds using eXplainable artificial intelligence, which provides better regression accuracy than multiple regression analysis. The analysis is particularly crucial in the world’s many non-bankruptcy law countries: those without legislation for local government failure. Very little research has been conducted to date on their municipal bond markets. This study focuses on the Japanese market as a representative non-bankruptcy law country. The results demonstrate that accrual-based information disclosed by local governments contributes as much to determining municipal bond prices as traditional disclosure information other than accrual-based information, even in a non-bankruptcy law country, such as Japan