Financial manager professionalism and use of interfund transfers: Evidence from Georgia counties

Abstract

AbstractPublic managers strategically use resources to smooth out cash receipts and disbursements. As a cash flow management tool, managers can use interfund transfers, which are flows of assets without equivalent return flows and without repayment. This study asserts that managerial professionalism, in the form of a full‐time finance director, drives the likelihood of interfund transfers. Using 2010–2017 data from Georgia counties, hurdle model results indicate that full‐time finance directors are more likely to use interfund transfers and increase their level. This finding demonstrates the role of financial management expertise in increasing the strategic options available to manage cash flows.Applications for Practice Local governments with a full‐time finance director use more interfund transfers as one working capital management strategy to manage cash flows. Results from this study provide a justification for local governments to hire a full‐time finance director to improve the array of financial management strategies accessed. Local governments that increase tax base diversity have reduced engagement for General fund interfund transfers in, while higher levels of reported cash generate larger amounts of transfer activity.