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FOOL THE MARKETS? CREATIVE ACCOUNTING, FISCAL TRANSPARENCY AND SOVEREIGN RISK PREMIA
Article first published online: 28 JUL 2008
DOI: 10.1111/j.1467-9485.2008.00462.x
© 2008 The Authors. Journal compilation © 2008 Scottish Economic Society
Additional Information
How to Cite
Bernoth, K. and Wolff, G. B. (2008), FOOL THE MARKETS? CREATIVE ACCOUNTING, FISCAL TRANSPARENCY AND SOVEREIGN RISK PREMIA. Scottish Journal of Political Economy, 55: 465–487. doi: 10.1111/j.1467-9485.2008.00462.x
Publication History
- Issue published online: 28 JUL 2008
- Article first published online: 28 JUL 2008
- Date of receipt of final manuscript: 7 December 2007
- Abstract
- Article
- References
- Cited By
Keywords:
- G12;
- E43;
- E62;
- H6;
- F34
- Risk premia;
- government bond yields;
- creative accounting;
- stock-flow
ABSTRACT
We investigate the effects of official fiscal data and creative accounting signals on interest rate spreads between bond yields in the European Union. We find that two different measures of creative accounting indeed both increase the spread. The increase of the risk premium is stronger, if financial markets are unsure about the true extent of creative accounting. Moreover, fiscal transparency reduces risk premia. Instrumental variable regressions confirm these results by addressing potential reverse causality problems and measurement bias.