Determinants of the credit rating fee in the municipal bond market

Improving transparency of prices paid by government can improve market and government efficiency. Governments regularly pay to access capital markets, yet municipal bond issuance costs remain largely hidden from public view. This study examines factors associated with credit rating fees using a decade of Texas municipal bond issuance data. We find that rating fees are lower in a competitive environment, when issuers have experience and a relationship with the rating agency, and higher when the issue is large and more complex. The findings provide evidence that credit rating agencies (CRAs) retained pricing power following the credit crisis despite reduced reputational quality.