Abstract
PurposeConsidering the increased financial responsibility of local government (LG), the impact of global crises and the growing adoption of accrual accounting and common standards such as IPSAS, this work focuses on financial indicators for LGs. It explores whether the literature on financial indicators has grown, investigates whether there is any consensus on which indicators to use for assessing LG's financial condition, develops a critical reading of the literature and offers suggestions for future research and policy agendas.Design/methodology/approachA structured literature review was carried out for publications in English about LG financial indicators.FindingsResults reveal that the number of publications dealing with financial indicators has increased over the past ten years. However, rather than focusing on a set of common indicators, the literature reports a plethora of different ones used for four main purposes: transparency and accountability compliance, performance monitoring and benchmarking, assessing LG's financial health and helping deal with exogenous crises. There is no evidence of convergence towards a common set of indicators, even though liquidity and solvency are the most popular dimensions explored by scholars.Research limitations/implicationsFindings highlight the challenges in converging on financial indicators, yet no claim can be made beyond the reviewed material.Practical implicationsResults provide legislators, public managers, investors and rating agencies with insights about trends in financial indicators, their benefits and limitations.Originality/valueThe article focuses on a less popular aspect of recent financial management reforms for local administration, that is the growing fragmentation in LG indicators, accentuated by the need for common assessment tools during unprecedented widespread crises across countries and sectors.
Highlights
Recent public sector reforms aiming at improving transparency, intergenerational equity, management capabilities, efficiency and effectiveness have led to more decentralized systems of public finance, accompanied by a reduction in central government transfers (Pollitt and Bouckaert, 2017)
Through a structured literature review (Massaro et al, 2016) this paper aims to: (1) investigate the developments of the literature on financial indicators and, in particular, whether it has grown alongside recent local government (LG)’s reforms and global crises; (2) develop a critical reading of the literature on LG financial indicators and appreciate whether there is consensus among scholars on the indicators used to assess LG’s financial condition and (3) offer suggestions for future research and policy agendas
This standardization process is led by the International Federation of Accountants (IFAC), which has encouraged the adoption of accrual accounting throughout the public sector and has published the IPSAS common standards for public entities from national to local governments (Vivian and Maroun, 2018)
Summary
Recent public sector reforms aiming at improving transparency, intergenerational equity, management capabilities, efficiency and effectiveness have led to more decentralized systems of public finance, accompanied by a reduction in central government transfers (Pollitt and Bouckaert, 2017). This has shifted the responsibility for managing financial resources from central government to local authorities and has been accompanied by the introduction of accrual accounting and common standards such as IPSAS (International Public Sector Accounting Standards) to increase accountability, transparency and budget control (Pina et al, 2009). The full terms of this licence may be seen at http:// creativecommons.org/licences/by/4.0/legalcode
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