Management capacity and state municipal bond ratings: Evidence with the gpp grades

Zhirong J Zhao, Hai David Guo

Research output: Contribution to journalArticlepeer-review

16 Scopus citations


Most state governments issue general obligation (GO) bonds in the financial market to borrow money. Assigned by credit agencies, state GO bond ratings reflect states' perceived credit quality and affect their borrowing costs. Despite many studies on the determinants of municipal bond ratings, little has been known about the association between state management capacity and bond ratings because management capacity is generally difficult to quantify. However, state governments' performance grades assigned by the Government Performance Project (GPP) provide a great opportunity to study how people perceive and respond to state governments' management capacity. This study finds that states with higher GPP grades tend to have higher state GO bond ratings, but the relationship may be nonlinear as people are more sensitive to the extremes of perceived performance. In particular, we observe a "performance premium" scenario in which S&P bond ratings grow at an increasing rate as state GPP grades improve.

Original languageEnglish (US)
Pages (from-to)562-576
Number of pages15
JournalAmerican Review of Public Administration
Issue number5
StatePublished - Sep 2011

Bibliographical note

Copyright 2011 Elsevier B.V., All rights reserved.


  • debt management
  • government performance project
  • public management

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