A city's lack of industrial diversity only hurts its credit rating if the city is already poor.
March 31, 2026
Original Paper
Industrial Concentration, Property Values, and Municipal Bond Spreads
SSRN · 6471598
The Takeaway
Standard economic wisdom says cities should diversify their industries to lower risk. However, this study found that municipal bond markets only penalize 'one-company towns' if property values are low; wealthy cities can remain highly concentrated in a single industry without facing higher borrowing costs.
From the abstract
This paper proposes that the composition of a city's industrial base helps determine the pricing of its bonds through the interaction of two channels. First, cities that are home to a diversified set of industries can better absorb shocks to any single sector. Second, cities dominated by high-wage industries are more affluent and have greater fiscal capacity to absorb shocks. Using a panel of 1,253 cities from 2005 to 2022, I show that employment concentration raises municipal bond spreads but o