When do Governments Obfuscate: Examining Financial Disclosure in Florida Local Governments

• In Event: Considering the Constraints of Government Agencies

Abstract

When reporting financial information, U.S. state and local governments are required to supplement their financial statements with a Management Discussion and Analysis (MD&A) explaining their current fiscal condition. This requirement aims to provide interested stakeholders with a clear picture of their governments’ fiscal health. Previous research has examined the drivers of financial transparency at the country level (Alt & Lassen 2006; Benito & Bastida 2009). However, the determinants and their effects at the local level are still less understood (Esteller-Moré & Polo Otero 2012). Drawing on democratic theory and principal-agent theory, this study seeks to assess local governments' transparency level and analyze under what conditions some governments obfuscate more than others. We also ask whether the level of fiscal autonomy moderates the effect of fiscal conditions on transparency. To answer these questions, we code the MD&A section of the Comprehensive Annual Financial Reports (CAFRs) of Florida county governments between 2011 and 2021 and construct an index that captures the variation in the level of financial transparency. Empirical results demonstrate that the fiscal transparency index increases when the county government cash ratio goes up and reduces when the debt burden ratio rises. The study offers novel insights into the willingness of local governments to disclose fiscal information and the factors that contribute to a more open, transparent, and accountable public administration.

 

Author

• Apu Deb, Florida International University
  Presenting Author