Does Financial Slack Reduce Municipal Short‐Term Borrowing?

19 Pages Posted: 2 Mar 2018

See all articles by Min Su

Min Su

Louisiana State University, Baton Rouge - E.J. Ourso College of Business Administration

W. Bartley Hildreth

Georgia State University - Andrew Young School of Policy Studies

Date Written: Spring 2018

Abstract

Many municipal governments face the challenge of temporary cash deficits due to the mismatched schedules of cash flow‐ins and flow‐outs. To smooth the temporary deficits, they can use either internal financial resources such as financial slack or external financial resources such as short‐term borrowing. This paper applies the pecking order theory to examine municipal governments' financial preference when they experience cash flow problems. Results show that municipal governments prefer accumulated financial slack to short‐term borrowing when both options are available. This finding demonstrates financial slack's role as a convenient cash management tool in municipal financial management. It also suggests the applicability of the pecking order theory in future public financial management research.

Suggested Citation

Su, Min and Hildreth, W. Bartley, Does Financial Slack Reduce Municipal Short‐Term Borrowing? (Spring 2018). Public Budgeting & Finance, Vol. 38, Issue 1, pp. 95-113, 2018. Available at SSRN: https://ssrn.com/abstract=3132810 or http://dx.doi.org/10.1111/pbaf.12189

Min Su (Contact Author)

Louisiana State University, Baton Rouge - E.J. Ourso College of Business Administration ( email )

Baton Rouge, LA 70803-6308
United States

W. Bartley Hildreth

Georgia State University - Andrew Young School of Policy Studies ( email )

14 Marietta Street, NW
Atlanta, GA 30303-3992
United States
404-413-0271 (Phone)

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