Beruflich Dokumente
Kultur Dokumente
www.elsevier.com/locate/jaccpubpol
a
School of Accountancy, Massey University, Private Bag 11 222, Palmerston North, New Zealand
b
Department of Accountancy, Finance, and Information Systems, University of Canterbury,
Private Bag 4800, Christ church, New Zealand
c
Centre of Accounting Education and Research, Lincoln University, New Zealand
d
Department of Accounting, College of Commerce and Economics, Sultan Qaboos University,
P.O. Box 20, AL Khod PC 123, Oman
Abstract
The reform of public sector (local and central government) financial reporting in
New Zealand in the early 1990s has aligned such reporting with reporting practices in
the private sector (business enterprises). Literature examining the behaviour of manag-
ers in the public (government) sector suggests that agency relationships in the sector
motivate such managers to provide information to enable the monitoring of their
actions. This literature identifies a number of characteristics and variables that proxy
for agency costs in the public sector. The recent development of the Internet provides
an opportunity for examining voluntary disclosure in the public sector and, in particu-
lar, in the local government environment. Some New Zealand local government author-
ities elect to voluntarily provide financial information on their websites. This paper
examines the voluntary Internet financial reporting practices of local authorities. Six
variables associated with voluntary disclosure are examined: political competition, size,
*
Corresponding author. Tel.: +64 6 356 9099; fax: +64 6 350 5658.
E-mail address: f.laswad@massey.ac.nz (F. Laswad).
0278-4254/$ - see front matter Ó 2005 Elsevier Inc. All rights reserved.
doi:10.1016/j.jaccpubpol.2004.12.006
102 F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101–121
leverage, municipal wealth, press visibility, and type of local authority. Results indicate
that leverage, municipal wealth, press visibility, and type of council are associated with
the Internet financial reporting practices of local authorities in New Zealand. Policy
implications and possible limitations of the study as well as suggestions for future
research are discussed in the paper.
Ó 2005 Elsevier Inc. All rights reserved.
Keywords: Internet financial reporting; Local governments; Voluntary disclosure; New Zealand
1. Introduction
1
The Public Finance Act 1989 requires that the Crown, Crown entities and agencies, and
departments prepare their accounts in accordance with generally accepted accounting practice. An
amendment to the Local Government Act 1974, in 1989, also requires that audited financial
statements of local authorities be prepared in accordance with generally accepted accounting
practice.
2
The annual report provides historical financial information while the annual plan provides
forward-looking financial information.
3
The Act does not specify the medium for the dissemination of financial information. It requires
only that local authorities send copies of their annual reports and plans to the secretary of local
government, the auditor general, and the parliamentary library. Local authorities are also required
to make their annual reports and plans available for public inspection in their offices and libraries
and to make copies of such reports available to the public either free of charge or at a reasonable
charge.
F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101–121 103
2. Literature review
2.1. Agency relationships and the incentives for disclosure in the public sector
The relationship between the political (public sector) manager and the voter
can be described as an agency relationship whereby the voter is the principal
and the political manager is the agent (Banker and Patton, 1987). In this sce-
nario, politicians are assumed to be self-interested, maximising agents, whereby
the maximisation of their wealth depends on their re-election, advancement,
and current and future income, both pecuniary and non-pecuniary (Zimmer-
man, 1977). Voters are also assumed to be self-interested and to act in such
a way as to increase their wealth. VotersÕ wealth is related to the actions of their
agents. Accordingly, each voter has an incentive to monitor the behaviour of
politicians (Zimmerman, 1977). Further, voters may align themselves with
interest groups, which have greater power to affect the outcome of elections
than individual voters (Baber, 1983).
Similar to other agency relationships, the interest group (the principal) and
the politician (the agent in the public sector) share certain benefits and also cer-
tain costs. Therefore, elected politicians supply monitoring information to
show that they are honouring pre-election promises, and their incentives to
do so increase as political competition increases (Baber, 1983).
The discussion above indicates that agency relationships in the public
sector provide incentives to public sector managers to voluntarily disclose
104 F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101–121
viewers and radio listeners, and therefore affects the advertising rate’’. The po-
sitive relationship between press coverage and disclosure is, however, not sup-
ported in IngramÕs (1984) study that finds a negative relationship between
newspaper circulation and disclosure quality of financial reports.
It is, perhaps, not surprising that prior studies have yielded inconsistent re-
sults for certain variables. Relative to the private sector, the theory of volun-
tary disclosure in the public sector is at a comparatively early stage and still
requires the development of a critical mass of research literature. Further, un-
like the private sector, which is generally more homogeneous in nature, the
diversity of public sector contexts, public sector entitiesÕ objectives, regulatory
environments, and available archival data, has necessitated the use of different
metrics for similar concepts across prior studies. The present study attempts to
contribute towards the development of a critical body of voluntary disclosure
research in the public sector using well established constructs drawn from prior
public sector literature, and, where possible, similar metrics. Further, the study
is limited to a single regulatory environment and includes local authorities of
varying sizes, ranging from small to large.
There are 86 local authorities in New Zealand structured into two principal
forms, regional councils and territorial authorities. Territorial authorities are
either district or city councils. Regional councils are responsible for resource
management, bio-security, catchment control, harbour administration, regio-
nal civil defence, and regional land transport. City and district councils are
responsible for community well-being and development, environmental health
and safety (including building control, civil defence, and environmental health
matters), infrastructure (roads and transport, sewerage, water/stormwater),
recreation and culture, and resource management including land use planning
and development control.
Eligible voters are entitled to vote for councillors and, in the case of territo-
rial authorities, a mayor. The council appoints a chief executive officer (CEO)
to whom heads of departments within the council are responsible. Under the
Local Government Act 1974, the CEO (city manager) is charged with the
responsibility for implementing decisions of the council, providing advice to
council, and ensuring effective, efficient and economical management of the
activities and planning of the local authority.
Over the last decade, local government has become increasingly independent
of central government. Central government has simultaneously devolved cer-
tain responsibilities, and reduced the extent of financial assistance and subsi-
dies, to local government. The United Nations Economic and Social
Commission for Asia and the Pacific (2001) estimates that 90% of New Zealand
106 F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101–121
4. Hypotheses
This section develops the studyÕs hypotheses relating to the factors expected
to affect New Zealand local authoritiesÕ discretionary use of the Internet for
financial reporting. It draws heavily on the literature and theory reviewed in
the preceding section. The study does not attempt to model in detail all possible
agency relationships pertaining to local authority entities.4 Instead, it focuses
on those that we believe are most relevant to a discussion of external financial
reporting on the Internet.
4
The objective of this study is to examine whether managerial incentives models are appropriate
for public sector settings. While this study is not aimed at directly comparing the public and private
sectors, it could be argued that the managerial incentives in both sectors are somewhat similar for
the following reasons: (1) in New Zealand, managers move between the two sectors. Appointments
open to public sector managers are also open to private sector managers; (2) as part of the reform
of the public sector in New Zealand, greater emphasises has been placed on commercial and
financial objectives and transparency. The alignment of reporting standards is motivated by these
objectives; and (3) a number of studies have used managerial incentives in the private sector as
models for explaining public sector behaviour.
F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101–121 107
The supply of potential office holders and the corresponding risk of defeat at
future elections, reduces the deviation between voters and political agentsÕ
interests (Zimmerman, 1977). High levels of political competition increase
the long run cost to elected officials of ignoring pre-election promises, and
motivate incumbents to agree to bear greater monitoring costs (Baber, 1983;
Evans and Patton, 1987). The Internet is a cost-effective mechanism for the
instantaneous and simultaneous dissemination of information to voters, and
therefore may be an important medium for discharging political agentsÕ incre-
mental monitoring obligations.
Further, Baber and Sen (1984) argue that political competition makes ‘‘. . .
incumbents more vulnerable to claims by political rivals of irresponsible man-
agement, and therefore increases incentives to engage in self-regulation—that
is, to demonstrate a commitment to efficient management—by using accepted
reporting methods . . .’’ (p. 94). There is evidence that the use of the Internet for
financial reporting is fast becoming the norm in the private sector internation-
ally.5 Indeed, the US Securities and Exchange Commission (SEC) has stated
that as more investors have access to and use the Internet, the Commission will
consider encouraging the use of the Internet as a prime dissemination tool
(SEC, 2001). Accordingly, the voluntary use of the Web for financial reporting
by some local authorities in New Zealand may represent an attempt to demon-
strate self-regulation in the form of compliance with Ôbest practiceÕ reporting
methods.
The first hypothesis (in alternate form), then is
Baber (1983) argues that the number and magnitude of wealth transfers
administered by political agents may increase competition for public office.
Increasing political competition makes it more costly for incumbent political
agents to ignore pre-election agreements with supporting voters (or interest
groups), so political agents have an incentive to bear greater monitoring costs
by supplying more information which demonstrates their execution of pre-elec-
tion promises (Baber, 1983).
5
For example, see Lymer et al. (1999).
108 F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101–121
Given the need for greater disclosure by large local authorities, it is expected
that such entities will tend to adopt a variety of disclosure methods. The Inter-
net is likely to be a particularly efficient means of satisfying the political man-
agerÕs voluntary disclosure incentives in large local authorities, as the cost of
information production and dissemination on the Internet is likely to be largely
independent of their size (Ettredge et al., 2002; Pirchegger and Wagenhofer,
1999). As a consequence, the benefits of disclosure over the Internet are likely
to be increasing with size (Debreceny et al., 2002; Pirchegger and Wagenhofer,
1999).
The second hypothesis (in alternate form), then is
H2 There is a positive association between local authority size and the volun-
tary use of Internet financial reporting.
It has been argued that the use of debt to finance public activities provides
an incentive for political managers to reduce the cost of debt (Zimmerman,
1977). This may be achieved through the voluntary disclosure of information
that facilitates monitoring by creditors (Zimmerman, 1977; Baber, 1983; Baber
and Sen, 1984; Ingram, 1984; Ingram and DeJong, 1987; Christiaens, 1999;
Gore, 2004). Such incremental disclosure can occur through traditional hard
copy financial statements and other media, such as Internet financial reporting.
Therefore:
6
Ingram (1984) defines Ôown revenue per capitaÕ as general revenues other than intergovern-
mental transfers. Such intergovernmental transfers are negligible in New Zealand since the reforms
to the public sector discussed in Section 3.
F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101–121 109
Internet financial reporting (IFR), preferring instead to, ‘‘. . . restrict access to
accounting information to more determined users’’ (Craven and Marston,
1999, p. 323). Hence:
While the incentives for individual voters to monitor political behaviour ap-
pear limited, coalitions of voters (such as political parties, industrial or occupa-
tional coalitions, etc.) have greater incentives to do so due to their potential
ability to influence the outcome of elections via collective voting (Baber,
1983; Ingram, 1984). Local political managers of councils subject to the scru-
tiny of cohesive coalitions will have corresponding incentives to facilitate the
supply of information useful in the monitoring of their actions. As urbanisa-
tion facilitates the formation of coalitions (Ingram, 1984), it is probable that
local political managers in councils with proportionately large populations in
metropolitan areas have greater incentives to voluntarily provide monitoring
information than managers in councils with relatively large rural populations.
Coupled with the fact that urbanisation has been associated with Internet ac-
cess and usage,7 it is also probable that voluntary IFR disclosures will be high-
est among city councils and regional councils relative to district councils. Both
city and regional councils have higher proportions of rate payers in major
7
For example, see Falling Through the Net: Defining the Digital Divide—A Report on the
Telecommunications and Information Technology Gap in America (July 1999) and subsequent
updates produced by the National Telecommunications and Information Administration (NTIA).
110 F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101–121
5. Research design
Table 1
Local authoritiesÕ maintenance of websites
Type Regional City council District Total
council council
No. % No. % No. % No. %
With website 11 92 15 100.0 35 59 61 71
Without website 1 8 0 0.0 24 41 25 29
Total 12 100.0 15 100.0 59 100.0 86 100.0
Table 2
The nature of published financial information on the Internet (n = 30)
Council type Total
Regional City District No. of local %
authorities
Financial highlights only 1 – 3 4 13.3
Annual reports only 1 – 1 2 6.7
Annual plan only 1 6 7 14 46.7
Combinations of annual reports, 3 4 3 10 33.3
plans and financial highlights
Total 6 10 14 30 100
F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101–121 111
Table 3
Research variables
Variable Definition
Political competition
Number of candidates
Ratio of candidates to position
Positions available
Size
Total assets Average total assets
Total revenue Average total revenue
Leverage
Long-term liabilities
Long-term liabilities: total assets
Total assets
Long-term liabilities
Total public equity
Municipal wealth
Average total revenue
Own revenue per capita
Population
Press visibility
News item count Number of news items in the print press
in which the local authority appeared during 2000,
as measured by a count search on Newzindex
Council type
Form of local authority Type of council: District, city, or regional
Table 4
Descriptive statistics and univariate sample tests
Variable Statistic All local Local authorities with websites
authorities
N-IFRAsa IFRAsa t-
(n = 86) (n = 31) (n = 30) Statistic
Panel A: Descriptive statistics and sample t-test of continuous variables
Political competition
Ratio of candidates Mean 2.340 2.280 2.550 1.497*
to position Median 2.300 2.300 2.400
Std Deviation .676 .647 .739
Minimum 1.000 1.000 2.000
Maximum 4.000 4.000 4.000
Size
Total assets Mean 462,976,620 428,723,543 685,017,202 1.500*
Median 313,585,333 358,378,167 351,140,547
Std Deviation 583,818,905 404,488,828 843,789,091
Minimum 23,847,016 41,350,667 79,517,333
Maximum 3,514,577,000 2,093,541,667 3,514,577,000
Table 4 (continued)
Pearson Chi-square statistic
Council type N-IFRA IFRA Total Value df Sig. (2-tailed)
Panel B: Chi-square test of categorical independent variable
Regional 5 6 11 3.142 2 .208
City 5 10 15
District 21 14 35
Total 31 30 61
***,*
Denote significance at the 1%, 5%, and 10% (one-tailed) levels, respectively.
a
IFRAs = Internet financial reporting local authorities; N-IFRAs = Non-Internet financial
reporting local authorities.
an effective proxy. Descriptive statistics for all the present studyÕs independent
variables are presented in Table 4.
A local authorityÕs engagement in Internet financial reporting is measured as
a dichotomous variable, which reflects whether the local authority does or does
not provide financial information on the web.
6. Data analysis
The aim of this study is to identify the determinants of IFR among local
authorities in New Zealand using both univariate and multivariate approaches.
Local authorities are categorised into those providing financial reports on the
Internet (IFRAs) (n = 30) and those that maintain a website but choose not to
use it to disseminate financial information (N-IFRAs) (n = 31).
Univariate independent sample t-tests are carried out on the independent
variables for the two main groupings of local authorities to test for possible dif-
ferences in the means of the selected variables between IFRAs and N-IFRAs.
Table 4 presents the results of these tests.
Logit analysis is used to determine the association of the independent vari-
ables with the dichotomous (IFRA vs. N-IFRA) Internet financial reporting
practice dependent variable. Logit allows the predication of a discrete outcome
(e.g., IFRA vs. N-IFRA) from a set of independent variables, which may be
continuous, discrete, dichotomous, or a mixture. Logit can be used to ascertain
which variables predict an outcome and how these variables affect an outcome
(Tabachnick and Fidell, 1996).
Expressed in its full form with respect to this study, the logit equation is
where, for the, ith authority, IFR is the IFR practice: 0 for N-IFRAs and 1 for
IFRAs, a is constant of the equation, Political competition is the ratio of candi-
dates to council positions, Size is either total assets or total revenue, Leverage is
either long-term liabilities: total assets or long-term liabilities: total public equity,
Municipal wealth is own revenue per capita, Press visibility is the news items
count, Council type is 1 if district council and 0 otherwise and l is the error term.
As predictor variables in logit models do not have to be normally distrib-
uted, linearly related, or of equal variance within each group (Tabachnick
and Fidell, 1996, p. 575; Hair et al., 1995, p. 130), none of the independent vari-
ables are transformed for the logit analysis. Table 5 contains the logit results.
Table 5
Multivariate regression results
Logit analysis
IFRi = a + b1Political competitioni + b2Sizei + b3Leveragei + b4Municipal wealthi
+ b5Press visibilityi + b6Council typei + li
Variable Expected sign Model coefficients (Std. error)
Model Aa Model Ba Model Ca Model Da
Constant +/ .169 .209 .462 .516
(1.537) (1.544) (1.513) (1.513)
Political competition + .274 .312 .479 .507
(.637) (.640) (.612) (.614)
Size + .000 .000 .000 .000
(.000) (.000) (.000) (.000)
Leverage + 1.276 1.278 2.399 1.856
(4.775) (2.843) (4.628) (2.733)
Municipal wealth + .001 .001 .001 .001
(.001) (.001) (.001) (.001)
Press visibility + .039* .038* .032 .031
(.023) (.023) (.023) (.022)
Council type 1.016 1.011 .985 1.007
(.810) (.806) (.842) (.843)
Log likelihood 70.444 70.291 71.438 71.169
Nagelkerke R2 .233 .236 .214 .219
Chi-square statistic 11.330* 11.484* 10.337 10.606
Degrees of freedom 6 6 6 6
Number of observations 60 60 60 60
Correctly predicted
N-IFR 75.9 72.4 72.4 72.4
IFR 56.7 56.7 56.7 56.7
Overall 66.1 64.4 64.4 64.4
*
Denote significance at the 1%, 5%, and 10% levels, respectively.
a
Proxies for size and leverage, respectively, are as follows: Model A-total assets and long-term
liabilities: total assets; Model B-total assets and long-term liabilities: total public equity; Model C-
total revenue and long-term liabilities: total assets; and Model D-total revenue and long-term
liabilities: total public equity.
nificant differences between the two groups of local authorities on the bases of
political competition, size, and press visibility.
Panel A of Table 4 reveals that political competition is more intense in
IFRAs than N-IFRAs. The ratio of candidates to council positions in IFRAs
is statistically significantly higher at the 10% level.
Similarly, IFRAs are significantly larger than N-IFRAs (at the 10% level
using either proxy for size). This result is consistent with the findings of previ-
ous studies on the characteristics of local authorities (and their variants), con-
firming size as a determining variable at the univariate level (Baber, 1983;
Evans and Patton, 1987; Christiaens, 1999).
116 F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101–121
8
Removing problematic outliers assists in removing distortion from statistical tests and leads to a
better understanding of the phenomena being examined (Hair et al., 1995, pp. 57–58).
F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101–121 117
At first sight, the results reported in Table 5 appear to provide weak support
for only one of the studyÕs hypotheses. However, an alternative interpretation
of the results is possible by virtue of the fact that the studyÕs sample consists of
the entire population of New Zealand local authorities with websites at the
time of the study. As long as there is no intention to make inferences from
the results beyond New Zealand local authorities, the studyÕs sample may, in
fact, be regarded as a 100% sample. When a sample represents the entire pop-
ulation, tests of significance are generally less meaningful because any non-zero
regression coefficient must, with certainty, be non-zero for the population as a
whole.9 Each regression coefficient is regarded as an actual population value
(which is a constant) rather than as an estimator (with associated sampling dis-
tribution) of a population value (Kish, 1965).
Using this alternative interpretation of the results, it is apparent that, in
addition to press visibility, three further variables (leverage, municipal wealth,
and council type) are non-zero and in the predicted direction across all
models.10
Among New Zealand local authorities, leverage (H3) appears to be posi-
tively associated with IFR practices. Table 5 reveals such a relationship across
all four models. This result suggests that political managers of New Zealand
municipalities, which are subject to relatively high debt burdens, perceive
IFR as a potential means of facilitating monitoring by creditors. The result
is also consistent with the findings in several previous public sector voluntary
disclosure studies conducted in the US (e.g., Ingram and DeJong, 1987; Evans
and Patton, 1987; Gore, 2004).
The results in Table 5 suggest that municipal wealth (H4), as proxied by
Ôown revenue per capitaÕ, is directly associated with the practice of IFR for
New Zealand local authorities. This finding is consistent with that of Ingram
(1984) and suggests that this variable is perceived by management as an impor-
tant indicator of their quality in the New Zealand public sector environment.
9
It is acknowledged that tests of significance could be meaningful in these circumstances if
measures of dependent and explanatory variables are regarded as being random draws from
distributions of possible values. This could be seen to be the case, for example, for a measure such
as stock returns based on closing price minus opening price. One more or less transaction on the
relevant day could have resulted in a different closing stock price. This is consistent with the
superpopulation concept, under which a finite population may be regarded as being drawn from a
larger universe (Cassel et al., 1977). However, we do not believe that this view is particularly
applicable to this study, as its measurements of variables, such as size, are likely to be highly
correlated from day to day and even from year to year. (We are grateful to one of the manuscriptÕs
reviewers for this observation.)
10
Interpretation of the results reported in Table 5 in the proposed manner must be tempered by
the possibility that, whilst the coefficients corresponding to the three additional variables are
reliably different from zero, they may be close to zero (i.e., have ÔshallowÕ slopes). This may explain
the prevailing lack of significance in the models generally.
118 F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101–121
Council type (H6) is a predictor of IFR among New Zealand local author-
ities. As evident in Panel B of Table 4, a lower proportion of district councils
(40%) engage in IFR than regional (55%) or city (67%) councils, respectively.
The Internet is, at least at its initial stage, an urban phenomenon. This perhaps
explains its relatively greater use by city councils and, to a lesser extent, regio-
nal councils, for financial reporting purposes. Ingram (1984) also found urban-
ization to have a significant influence on disclosure practices.
As is apparent from Table 5, the expected positive association between polit-
ical competition (H1) and New Zealand local authoritiesÕ IFR practices was not
found. This finding is surprising given previous findings in the governmental
sector financial disclosure literature (Baber, 1983; Baber and Sen, 1984; In-
gram, 1984). It appears that IFR is not seen by political managers of New Zea-
land local authorities as a critical means of demonstrating self-regulation in the
form of compliance with Ôbest practiceÕ reporting methods, even in the presence
of intense political competition. In fact, the greater the intensity of political
competition, the lesser the tendency of managers of local authorities to use
the Internet to voluntarily report financial information.
Also surprising was the fact that size (H2) (across all four models) was found
not to be a predictor of IFR among New Zealand local authorities. It appears
that, unlike the findings of earlier studies in both the public sector (Baber,
1983; Evans and Patton, 1987; Christiaens, 1999) and private sector financial
disclosure literature (Courtis, 1979; McNally et al., 1982; Cooke, 1989a,b,
1991, 1992; Hossain et al., 1995; Wallace et al., 1994; Wallace and Naser,
1995; Inchausti, 1997; Owusu-Ansah, 1998; Ashbaugh et al., 1999; Debreceny
et al., 2002; Ettredge et al., 2002; Oyelere et al., 2003), size does not appear to
be an important explanatory variable for IFR practices of New Zealand local
authorities. Larger New Zealand local authorities may not be taking full
advantage of the potential economies of scale benefits that may be available
from the use of the Internet for financial information dissemination.
In summary, support was found for four out of the six alternate hypotheses
stated in this study based on the results of multivariate analysis. The predicted
positive associations between leverage (H3), municipal wealth (H4), and press
visibility (H5), on the one hand, and IFR practices on the other, were supported.
Also, the predicted negative relationship between council type (H6) and IFR
practices was also borne out by the studyÕs results. However, the hypotheses
postulating a positive relationship between IFR practices, on the one hand,
and political competition (H1) and size (H2) on the other, were not supported.
Acknowledgments
We are grateful for the valuable comments we have received from the Jour-
nalÕs reviewers on an earlier draft of the paper. We acknowledge the research
assistance provided by Shireen Zaharudin and Fareeha Shareef, and the com-
ments and suggestions received from participants at the 2002 Annual Meeting
120 F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101–121
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