Conference Agenda

1. Purpose of the paper

The municipal bond market is a key area in public sector financial management, as municipal bonds serve as a major funding tool for local governments. The volume and cost of borrowing directly affect financial condition. Prior studies have shown that accounting disclosures by local governments influence interest rates in municipal bond markets. Other research highlights the importance of fiscal transparency, financial sustainability, and institutional design in shaping borrowing costs and investor perceptions.

Municipal bonds are issued in two main markets: public offering bonds (public market) and private placement bonds (private market). Public markets involve a wide range of investors, with pricing determined by market dynamics, while private markets involve a limited number of investors and rely on bilateral negotiations. Local governments must decide which market to access, and understanding how accounting information contributes to pricing in each context is critical.

In corporate bond research, it is well-established that firms with lower accounting quality or less rigorous disclosure policies tend to prefer the private placement market, where disclosure requirements are less demanding. However, few studies—whether in corporate or municipal contexts—have directly compared the role of accounting information in pricing between public and private bond markets. This study addresses that gap.

2. Research methodology

We identify two methodological challenges in comparing the impact of accounting information across markets. First, ordinary least squares (OLS) regression assumes linearity and may fail to detect complex interactions. Moreover, statistical significance in both markets may obscure differences in the relative importance of accounting variables. Second, empirical analysis requires large-scale, standardized data, which are generally scarce for private markets due to their negotiated and decentralized nature.

To overcome these challenges, we apply machine learning to capture nonlinear relationships and use Shapley Additive Explanations (SHAP) to measure the contribution of accounting variables to interest rate determination. We focus on Japan, which has the second-largest municipal bond market globally. Nearly all private placements are managed by a single securities firm and recorded in a centralized database (JSPRICE), providing rare access to comprehensive private market data. Japanese local governments also follow standardized accounting rules, ensuring comparability across entities.

3. Main findings and implications

Our analysis constructs a dataset covering both public and private municipal bond markets in Japan and applies machine learning to assess the contribution of accounting information in each. The results show that while accounting information is relevant in both markets, its relative contribution is smaller in the private market. This indicates that private market investors rely more on non-accounting or soft information when pricing risk.

The implications are twofold. From a research perspective, this finding suggests that private bond investors possess advanced capabilities in processing private information, resulting in structurally distinct pricing mechanisms. From a public financial management standpoint, the results imply that financially distressed local governments may be better served by accessing the private market—where accounting information plays a smaller role—and by strategically disclosing relevant private information during negotiations.

Purposes and objectives: Prior studies call for more empirical studies that investigate the use of cost and MA information for different purposes to attend to the needs of information of wide stakeholders. In the context of Portugal, the legal and normative frameworks are pressuring local governments to develop a full cost accounting system since 2000 and MA systems since 2020. But, prior literature evidence problems and delays in the implementation process of the formal and normative requirements (Carvalho, et al., 2012; Jorge et al., 2020), especially after the adoption of the new IPSAS-based accounting system (SNC-AP), which become mandatory for local governments since 2020. Complementing the institutional pressures for public sector accounting changes with the specific contingencies in the Portuguese context, our study aims two research objectives: (i) to understand how the new accrual-based MA system has been developed in the particular context of Portuguese municipalities, and (ii) for what purposes are MA information being developed.

Design/methodology: After describing the context of research and how legal and normative frameworks have evolved in the last 20 years for Portuguese municipalities, our findings are based on the perceptions of the producers of information (CFO - Chief Financial Officers) collected by a survey addressed to all the 308 municipalities in 2024. This is the first dataset that aggregates the CFO perceptions about the development of MA systems after the adoption of the SNC-AP in 2020 and its use for different purposes. Our sample is representative of the whole population (49% of responses). The original survey was built on a literature review basis and was pilot-tested by academics and practitioners.

Main Findings and Implications: The main findings highlight the different rhythms to which municipalities are developing MA. The maturity in the implementation of the new accounting changes and the adaption of the structures and staff to operationalize cost and MA information evidence a positive and significant influence, which reinforces the role of the contingency theory. In addition, CFO perceived different uses of management accounting information for different purposes. Although conceptually, MA is more related to internal decision-making processes, our findings highlight the role in promoting accountability for the wide stakeholders. This empirical research enhances the theoretical arguments on the intertwined between management accounting, accountability and governance (Napier & Carnegie, 2023; Liguori & Kelly, 2023; Major et al., 2023). In addition, the paper provides an innovative study on the use of MA information looking at the perception of local CFO.

In the last decades, the study of the use of financial information by politicians has raised interest among academics (e.g. Van Helden, 2016; Nogueira et al., 2023).

Overall, those studies have essentially addressed the types of information politicians use, their purposes, and the circumstances influencing their preferences. Authors have mainly focused on accessibility and usability of financial and accounting information (type, format, media, …) (e.g. Buylen & Christiaens, 2015; Caruana & Farrugia, 2018; Giacomini, 2020; Jorge et al., 2016, 2019), including a users’ needs standpoint, and how those and other issues affect information use (e.g. Guarini, 2016; Liguori & Steccolini, 2018; Sinervo & Haapala, 2019; van Helden et al., 2023). Most studies focused on local and central governments, while comparative-international studies have been limited. Also, qualitative approaches have prevailed (Nogueira et al., 2023).

Existing literature has not focused much on measuring the level of use of financial information by politicians. Some proposals came from Haustein et al. (2021), Faber & Budding (2022) and Pajković et al. (2023). Recently Jorge et al. (2024) proposed the FIU Index, to assess the degree of use of financial information by politicians in Portuguese small to medium size municipalities. The FIU index considered the number of times a certain accounting term (both cash and accrual-based) is mentioned by politicians during the meetings approving the annual budget and the annual accounts, both in local executive and council bodies.

This paper aims to further validate the FIU Index by exploring its application to a small group of large municipalities (200,000 to 600,000 inhabitants) from Portugal (Cascais, Lisboa, Porto and Vila Nova de Gaia) and Italy (Genova, Verona, Bari and Messina) in the period from 2020 to 2023. The research applies a multiple case study methodology (Yin, 2014), following a descriptive qualitative approach, relying on documental analysis of the minutes of the local councils (first stage), expected to be complemented with some online interviews (second stage) with the politicians in the local councils and some aldermen (executive).

The study explores the potential of the index to both qualitative and quantitative analysis. In particular, we intend to calculate the FIU Index for the municipalities considered, to assess them according to the level of use of financial information measured through an FIU Index, adapted to incorporate semantic differences that exist across countries and jurisdictions.

Thus, our research questions are:

1. What is the level of use of financial information by politicians in local councils, measured through the FIU Index, considering different countries?

2. Is financial information used more in the budgeting or reporting phases?

3. Which organizational and institutional circumstances/drivers seem to affect the level of use of financial information by politicians in municipalities?

We expect to contribute to the literature by supporting the validation of the measurement tool FIU Index. Moreover, the study brings qualitative implications for practice providing insights about issues that may hinder or enhance the use of financial information by local politicians, included the municipalities’ organizational and institutional context.

Objective: The Republic of Croatia has made significant progress in the development

of public sector accounting but still applies a modified accounting basis. The

accounting and reporting system is standardized for all public sector entities, and it is

regulated by a set of laws, decrees and rules. As local politicians play a unique role in

their local units and hold responsibility for decision-making, their understanding of

financial information and financial reports is important.

The aim of this paper is thus to explore whether local politicians in the Republic of

Croatia use financial reports and budget execution reports. This paper also aims to

address how local politicians assess the usefulness of these reports. In a nutshell, the

paper discusses whether financial reports of local government entities provide

information that is relevant for decision-making by local politicians.

Design/methodology: The study was conducted from February to April 2022. The

survey was conducted by a specialized market research institute. Respondents were

contacted by telephone. The sample included city councillors, municipal councillors,

mayors, deputy mayors, and municipality heads. A database of respondents was

created based on publicly available data. The respondents were randomly selected

from the created database and 538 responses were collected. In processing the data,

descriptive statistics and Pearson's r coefficient were used to determine the correlation.

Preliminary findings: The results show that respondents perceive the information in

financial reports as well structured and useful for decision making and financial reports

as being made electronically and publicly available in the timeliest manner. Yet, budget

execution reports are still preferred, and financial reports are used only to a limited

extent. In addition, in determining whether there is a correlation between the use of the

reports and personal characteristics of the respondents, the results show that job

position, years of experience, gender, and level of education influenced the use of the

reports. Furthermore, this study shows that mayors and municipality heads use reports

more than city councillors and municipal councillors do. This suggests that job position

and area of responsibility are key to the use of financial reports. This also suggests

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Corresponding and presenting author

that politicians, i.e., local councillors, are more inclined to use budget execution reports

as budget execution falls in their area of responsibility.

Expected contribution: The findings of this study contribute to the ongoing debate on

the fundamental purpose and usefulness of public sector financial reports at the local

government level. The findings of this study on factors impacting the use and

usefulness of reports and the information they contain might be useful to governments

that are undertaking or considering reforms of public sector accounting to gain more

sophisticated information and increase the usefulness of financial reports