Evidence on the Importance of the Financial Reporting Function in Municipal Governments

57 Pages Posted: 28 Mar 2021

See all articles by Inna Abramova

Inna Abramova

London Business School

Jacquelyn Gillette

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Joseph Weber

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: March 9, 2021

Abstract

We develop a database of the characteristics of the financial reporting function for all 482 California cities from 2013 to 2018, including the name and title of the individual who prepares the financial statements and the resources devoted to administrative duties. We find that financial reporting quality is associated with both the organizational design and the amount of resources devoted to the administrative function. Specifically, when the municipality employs a dedicated finance director, when the finance director simultaneously performs treasury responsibilities, and when the city devotes more resources to administrative salaries, municipalities provide disclosures that are of higher quality and generally benefit from a reduced cost of capital. Our findings are consistent across specifications that explore heterogeneity across and within cities, and after using extreme weather events as a source of plausibly exogenous variation in the municipal reporting function.

Keywords: Municipal accounting, Finance Director, CFO, Accounting Quality

JEL Classification: M40, H70, H72, H74

Suggested Citation

Abramova, Inna and Gillette, Jacquelyn and Weber, Joseph Peter, Evidence on the Importance of the Financial Reporting Function in Municipal Governments (March 9, 2021). Available at SSRN: https://ssrn.com/abstract=3801262 or http://dx.doi.org/10.2139/ssrn.3801262

Inna Abramova

London Business School

Regent's Park
London, NW1 4SA
United Kingdom

Jacquelyn Gillette (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

77 Massachusetts Ave. E62-663
Cambridge, MA 02142
United States

Joseph Peter Weber

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States
617-253-4310 (Phone)

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