Does Allowing the Public to Request Information Lower Government Financing Costs? Evidence from the Municipal Bond Market

Each U.S. state has implemented an information openness law, commonly known as the Freedom of Information Act (FOIA), granting any person or organization the right to request access to records from any government agency. However, the level of government transparency offered under the FOIA varies across states and over time. We contend that by offering access to government records, FOIA mitigates information asymmetry between municipal bond investors and issuers and improves the efficiency of local governments, leading to a decrease in municipal borrowing costs. Using staggered FOIA revisions and a stacked regression design, we find that municipal bond offering yield and offering yield spread decrease (increase) following revisions that strengthen (weaken) state-level FOIA. The FOIA effect on municipal borrowing costs is more pronounced in municipalities with fewer alternative information sources or weaker external monitoring and for riskier bonds. Collectively, the evidence suggests the significant benefits of FOIA in public finance.