When a local newspaper closes, the town pays more to borrow money. Three finance researchers, Pengjie Gao of Notre Dame and Chang Lee and Dermot Murphy of the University of Illinois Chicago, went looking for this in municipal bond data and published what they found in the Journal of Financial Economics in 2020. In the three years after a closure, offering yields on that municipality’s bonds rose 5.5 basis points, and secondary market yields rose 6.4. For revenue bonds, where the risk of a badly run project actually lands on investors, the effect was closer to 10 basis points. On a $65 million issue with a ten-year duration, ten basis points runs about $650,000. The authors also checked the obvious objection, which is that online outlets absorb the work, and found no sufficient substitution.
The part worth sitting with is not the number. It is that nobody at the newspaper was ever measured on municipal borrowing costs. No editor ran a report on the spread between what the county would h…
