To read this content please select one of the options below:

The effect of debt intensity on the asymmetric cost behavior: empirical evidence from local governments

Sotirios Karatzimas (Department of Accounting and Finance, Athens University of Economics and Business, Athens, Greece)
Vasilios Christos Naoum (Department of Maritime Studies, University of Piraeus, Piraeus, Greece)
Paschalis Seretis (Department of Maritime Studies, University of Piraeus, Piraeus, Greece)

Journal of Public Budgeting, Accounting & Financial Management

ISSN: 1096-3367

Article publication date: 9 July 2024

Issue publication date: 7 August 2024

101

Abstract

Purpose

This study explores the relationship between debt intensity and cost stickiness at the local government level, a setting characterized by the existence of debt constraints and political influence.

Design/methodology/approach

Building on a theoretical framework informed by the concepts of coercive isomorphism and accountability, the present study focuses on Greek municipalities and applies Anderson et al.’s (2003) extended methodology, as reviewed by Banker and Byzalov (2014), in a sample of 1,366 municipality year observations for the period 2011–2020.

Findings

The results indicate that the degree of cost asymmetry is negatively associated with debt intensity. Periods before elections present the same picture. This negative relationship becomes insignificant in the case of large municipalities, which probably require more resources to support their operations and incur higher adjustment costs for reducing resources. These findings are robust to use alternative types of expenses associated with cost stickiness and a battery of control variables.

Originality/value

Little is known about the impact of debt level and financial constraints on cost behavior in the public sector context. This study takes a fresh look at the relationship between municipal debt structure and cost stickiness, adding to the understanding of cost behavior considering the debt level, financial constraints, resource-adjustment costs and the underlying managerial behavior.

Keywords

Acknowledgements

The authors would like to thank the participants of the EGPA PSG XII Public Sector Financial Management Spring Workshop held in Zagreb, Croatia, where an earlier version of the paper was presented.

Citation

Karatzimas, S., Naoum, V.C. and Seretis, P. (2024), "The effect of debt intensity on the asymmetric cost behavior: empirical evidence from local governments", Journal of Public Budgeting, Accounting & Financial Management, Vol. 36 No. 4, pp. 514-535. https://doi.org/10.1108/JPBAFM-12-2023-0228

Publisher

:

Emerald Publishing Limited

Copyright © 2024, Emerald Publishing Limited

Related articles