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Article

Sandra Cohen, Antonella Costanzo and Francesca Manes-Rossi

This study aims to analyze whether and how a set of financial ratios calculated on the basis of financial statement information would allow auditors of Italian local…

Abstract

Purpose

This study aims to analyze whether and how a set of financial ratios calculated on the basis of financial statement information would allow auditors of Italian local governments (LGs) to get an indication of LGs’ financial distress risk and, hence, to support politicians and managers in promptly detecting financial distress.

Design/methodology/approach

A model comprising a set of financial indicators that would distinguish distressed from not distressed LGs through a logistic regression approach has been estimated and applied to Italian LGs. The model is built on the basis of information pertaining to 44 distressed and 53 not distressed LGs for up to five years prior to bankruptcy and covers the period 2003-2012.

Findings

The model reveals that the percentage of personnel expenses over revenues, the turnover ratio of short-term liabilities over current revenues and the reliance on subsidies (calculated as subsidies per capita) are factors discriminating non-distressed LGs from the distressed ones.

Practical implications

The model could have political and practical implications. The possible use of this model as a complementary tool in auditing activities might be helpful for auditors in detecting financial distress promptly, thus potentially enabling politicians and managers to search for different ways to manage public resources to avoid the detrimental consequences related to the declaration of distress.

Originality/value

This model, contrary to existing models that use accrual accounting data, is applicable to LGs that adopt a modified cash accounting basis.

Details

Managerial Auditing Journal, vol. 32 no. 3
Type: Research Article
ISSN: 0268-6902

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Article

Sandra Cohen, Sotirios Karatzimas and Vassilios-Christos Naoum

The purpose of this paper is to explore the asymmetric cost behaviour in Greek local governments. More precisely, it investigates whether municipality costs show…

Abstract

Purpose

The purpose of this paper is to explore the asymmetric cost behaviour in Greek local governments. More precisely, it investigates whether municipality costs show stickiness or anti-stickiness behaviour after increases or decreases in the stream of their revenues.

Design/methodology/approach

The Anderson et al.’s (2003) approach is adapted to the public sector environment by using types of expenses and revenues typical to the local government setting. The data sample consists of 1,852 observations of Greek municipalities for the period 2002-2008.

Findings

The empirical evidence suggests that local government managers adjust resources related to administrative services faster when revenues decrease than when they rise (anti-stickiness cost behaviour). On the contrary, they adjust costs of service provision which are associated with core activities asymmetrically; more quickly for upward than for downward activity changes (cost stickiness behaviour).

Research limitations/implications

While prior studies examine the sticky cost phenomenon in the private sector, this study explores this phenomenon in the public sector through a data sample of municipalities. Local governments constitute an appealing and unique setting for the examination of asymmetric cost behaviour due to the existence of a strong political influence, which appears to affect rational economic decision making, and their non-profit character, which prevents them from acting in a business-like manner.

Practical implications

Understanding how cost stickiness works inside local understanding how cost stickiness works inside local governments, could lead to an understanding of its implications in periods of cutback measures. Decreases in municipalities’ subsidies and grants as a result of cutbacks in central government expenditures should not be expected to automatically result in symmetric savings in expenditures as corresponding increases in expenditures when revenues used to grow. At the same time, it might be difficult to achieve balanced budgets in municipalities when there is a considerable decrease in revenues, without having to make considerable adjustments to the input values, the output and the mix of services offered by them.

Originality/value

This study contributes to the accounting literature by expanding the understanding of how deliberate decisions influence the asymmetric cost behaviour in local governments, to different cost categories (administrative expenses and cost of service provision) and different revenue categories (grants, tax revenues and revenues from sales of goods and services).

Details

Journal of Applied Accounting Research, vol. 18 no. 4
Type: Research Article
ISSN: 0967-5426

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Article

Sandra Cohen and Sotirios Karatzimas

Greece had to undertake several reforms under intense policy conditionality pressures – stemming from the three financial support programs agreed between the Greek…

Abstract

Purpose

Greece had to undertake several reforms under intense policy conditionality pressures – stemming from the three financial support programs agreed between the Greek Government and the Troika – and political instability. Within this context, this study aims to analyze the role of politicians and technical assistance staff in the administrative reform of the Greek state budget.

Design/methodology/approach

The study adopts the approach of an extreme country-case study which is analyzed through a theoretical framework with insights from the resource dependency theory and the concept of policy conditionality. The theoretical framework is supported by documents of the International Monetary Fund and the European Commission, including the technical Memoranda of Understanding (MoUs) and their progress reports and is informed by the outcome of interviews with General Accounting Office executives.

Findings

While the budget reform eventually met the MoU requirements, the frequent changes at the government level, the constant renegotiations with the Troika that initiated changes to the plan and the instability of the technical assistance teams formed to support the reform contributed to important implementation delays.

Originality/value

The study contributes to the research agenda on accounting reforms during periods of financial crises by providing evidence on the role of politicians’ level of ownership and technical assistance staff contribution.

Details

Meditari Accountancy Research, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2049-372X

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Article

Sandra Cohen and Ioanna Malkogianni

This study analyses the engagement of Greek municipalities in earnings management activities through the manipulation of their accrual accounts. It aims at identifying…

Abstract

Purpose

This study analyses the engagement of Greek municipalities in earnings management activities through the manipulation of their accrual accounts. It aims at identifying whether discretionary accruals are associated with certain financial sustainability measures calculated through financial statement numbers.

Design/methodology/approach

To test the hypotheses, the annual financial data of Greek municipalities for the period 2011–2018 are used. The final sample corresponds to an unbalanced panel data sample that includes 1,565 yearly observations. Total accruals and discretionary accruals modelling are based both on the aggregate Jones model and the modified Jones model.

Findings

The findings provide evidence that Greek municipalities engage in earnings management practices through the manipulation of accruals. Moreover, there is corroborative evidence that financial sustainability indicators, such as indebtedness, liquidity and efficiency ratios, are related to the magnitude of earnings management, while earnings management behaviour during the year preceding the municipal elections is more intense.

Originality/value

The paper expands the literature in earnings management in local governments by analysing the relation of financial sustainability indicators to this behaviour.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1096-3367

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Article

Sandra Cohen, Marco Bisogno and Ioanna Malkogianni

The purpose of this paper is to examine earnings management practices in local governments (LGs). The implementation of accrual accounting in LGs opens the way for…

Abstract

Purpose

The purpose of this paper is to examine earnings management practices in local governments (LGs). The implementation of accrual accounting in LGs opens the way for empirical research on the topic, as reporting high surpluses or high deficits can be negatively interpreted by the central government, monitoring authorities, citizens and political opponents. According to public choice theory, the conflicting interests between politicians, who pursue re-election, and voters, who observe politicians’ actions to assess their alignment with social welfare, create fertile ground for earnings management practices.

Design/methodology/approach

The study calculates discretionary accruals, by using the Jones (1991) model, and relates them to several political variables. It employs a large sample of Greek and Italian LGs. The Greek database covers the period from 2002 to 2015 with about 4,300 observations, and the Italian database includes the period from 2008 to 2015 with about 1,130 observations.

Findings

The findings from the analysis give evidence that LGs engage in earnings management. The principal factor is the electoral cycle, as earnings management seems to be greater when the mayor is re-elected than when the mayor is elected for the first time. Furthermore, the period before elections create conditions that cultivate earnings management attitudes.

Research limitations/implications

Previous studies have principally investigated earnings management in the private sector. Considering that many public-sector entities have implemented accrual accounting systems, this study intends to examine earnings management behaviour at the LG level, providing interesting findings for researchers and policy makers.

Practical implications

A better understanding of the political factors and the financial conditions, which act as obstacles or facilitators, should work hand in hand with the accounting reforms. The usefulness of financial statements for decision making and control presupposes that they are of high quality, an attribute that can be impaired by earnings management.

Originality/value

This study investigates the influence of political factors on earnings management behaviour in public-sector contexts where self-interest and accountability pressures coexist.

Details

Journal of Applied Accounting Research, vol. 20 no. 3
Type: Research Article
ISSN: 0967-5426

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Article

Isabel Brusca, Sandra Cohen, Francesca Manes-Rossi and Giuseppe Nicolò

The purpose of this study is to compare of the way intellectual capital (IC) is disclosed in the websites of the universities in three European countries to assess the way…

Abstract

Purpose

The purpose of this study is to compare of the way intellectual capital (IC) is disclosed in the websites of the universities in three European countries to assess the way universities decide to communicate IC to their stakeholders and identify potential patterns and trends. In addition, the relation between the level and the type of IC Web disclosure in universities and academic rankings as a proxy of performance is explored to reveal interrelations.

Design/methodology/approach

The study is based on a sample of 128 universities coming from Greece (22), Italy (58) and Spain (48). The websites of the universities are content-analysed to measure the level of IC disclosure. The IC disclosure metrics are then correlated with the academic rankings of the World Ranking.

Findings

While the level of IC disclosure among universities and among countries is not homogeneous, human capital and internal capital items are more heavily disclosed compared to external capital items in all three countries. In addition, larger universities in terms of number of students tend to disclose more on IC. Moreover, there is a positive correlation between the level of IC Web disclosure and the academic ranking that challenges the IC disclosure strategies followed by the universities.

Originality/value

The paper represents an innovative contribution to the existing literature as it investigates websites to assess the level of IC disclosure provided by universities in a comparative perspective. Furthermore, it analyses the relationship between the online IC disclosure and European universities’ academic rankings and provides evidence on the interaction between the IC disclosure and the ecosystem in which the universities operate contributing to the fourth stage of IC research.

Details

Meditari Accountancy Research, vol. 28 no. 1
Type: Research Article
ISSN: 2049-372X

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Article

Sandra Cohen and Sotirios Karatzimas

The purpose of this paper is to explore the role of the Troika’s advent played in the progress of the budgeting and the financial reporting systems reform at the Greek…

Abstract

Purpose

The purpose of this paper is to explore the role of the Troika’s advent played in the progress of the budgeting and the financial reporting systems reform at the Greek central government level.

Design/methodology/approach

The approach of an extreme country case study is adopted. The data used in the paper have been identified through document analysis performed on the relevant documents produced by the Troika, the Greek Ministry of Finance, and other relevant sources. The reform process is seen through the lens of the neo-institutional theory and the resource dependency theory.

Findings

Although both reforms targeted the introduction of best international practices – particularly useful in periods of financial distress and scarce resources – the advent of the Troika affected their progress and changed the priorities. As a result, the reform was redirected toward strengthening the cash budgeting system.

Research limitations/implications

The study is subject to the limitations of an extreme case study research.

Practical implications

This is a case where resource dependency changes political priorities and directions and affects the evolvement of state budget and accounting reforms under way.

Originality/value

The role of external fund providers in public sector financial management reform priority-setting, in the case of a developed Eurozone country, is analyzed. The study contributes to the research agenda on accounting practices in times of austerity.

Details

International Journal of Public Sector Management, vol. 31 no. 3
Type: Research Article
ISSN: 0951-3558

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Article

Sandra Cohen and Sotirios Karatzimas

This paper aims to provide an assessment of the decision-usefulness and quality of governmental financial reports in Greece under the recently adopted modified-cash basis…

Abstract

Purpose

This paper aims to provide an assessment of the decision-usefulness and quality of governmental financial reports in Greece under the recently adopted modified-cash basis. The evaluation is performed within the wider debate regarding the actual benefits of a transition toward an accounting paradigm that lies closer to accrual accounting as the Greek modified-cash basis borrows several accrual characteristics.

Design/methodology/approach

The transition to modified accruals is analyzed through the prism of the new institutional theory. The approach adopted builds on the characteristics of the accounting information pertaining to the conceptual frameworks of public and private sector accounting standard setting bodies. The assessment is conducted on the basis of the perceptions of public sector financial information users on a Web-based questionnaire.

Findings

The findings provide empirical evidence, albeit of moderate magnitude, in favor of the benefits associated with a move to full accruals.

Originality/value

The study moves the debate on the merits of accounting systems’ changes toward the worldwide witnessed trajectory a step forward by providing practical evidence on the matter.

Details

Meditari Accountancy Research, vol. 25 no. 1
Type: Research Article
ISSN: 2049-372X

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Article

Nils Soguel, Eugenio Caperchione and Sandra Cohen

The goal of this exploratory study was to investigate if, when asked to state their preferences for the allocation of public monies toward broad governmental functions…

Abstract

Purpose

The goal of this exploratory study was to investigate if, when asked to state their preferences for the allocation of public monies toward broad governmental functions, individuals state them at random or if their choice follows some rational pattern that can be traced using explanatory variables.

Design/methodology/approach

The paper presents the results of a survey conducted in Greece, Italy and Switzerland where the contingent allocation method was applied to a hypothetical allocation scenario of public monies to the functions of the government.

Findings

Findings based on 428 answers revealed that individuals were able to state their preferences for the various functions of the government as well as discriminate between the relative utility of each task and that the country context and personal characteristics significantly influence the respondents' allocations.

Originality/value

From a policy perspective, understanding citizen preferences in budget allocation may help governments rationalize the spending of public money.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 32 no. 3
Type: Research Article
ISSN: 1096-3367

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Book part

Sandra Cohen and Nikolaos Hlepas

The crisis exposed Greek municipalities to bilateral financial pressures from cutbacks and increased needs for social assistance. They were directly affected by…

Abstract

The crisis exposed Greek municipalities to bilateral financial pressures from cutbacks and increased needs for social assistance. They were directly affected by cheese-slice austerity measures that were implemented in the whole public sector (hiring freeze, cutbacks of salaries, dismissal of employees on contract basis) and successive cutbacks of state grants. In this chapter we discuss the case of four Greek municipalities. The sample was selected by taking into account the average financial performance of municipalities in terms of accrual accounting surplus/deficit over operating revenues and the volatility of this measure of financial performance over the period 2002–2012. In all four municipalities, interviews with an elected politician and municipal officials were conducted on the basis of a structured questionnaire that has been given to the interviewees before the meeting. The analysis revealed that all cities did not show significant anticipatory capabilities. This might be due to several shocks related to central government policies that were difficult to predict and to the ambiguity of the financial condition in the country. Municipalities proved to be particularly flexible and open towards social innovation and responded to the crisis through adaptation but they exhibited limited internal transformation. Nevertheless, the shock due to the crisis and the unprecedented decrease in municipal budgets has triggered a cultural shift towards more prudent management and parsimony. These findings show that Greek municipalities are still rather vulnerable to future shocks and especially to a further deepening of the on-going financial crisis.

Details

Governmental Financial Resilience
Type: Book
ISBN: 978-1-78714-262-6

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