Financial Reporting Quality and Online Disclosure Practices in Spanish Governmental Agencies

Javier Garcia-Lacalle,Lourdes Torres

doi:10.3390/su13052437

Abstract

Good governance in the public sector implies high accountability levels. Accountability is a multidimensional concept that includes the quantity and reliability of disclosures as well as rendering accounts to the citizenry. Nowadays, good governance, accountability, and financial performance are key for the long-term sustainability of autonomous public sector organizations. The objective of this paper is to study how key governance features relate to the quantity and quality of the information disclosed. In particular, how the governing body, financial performance and organizational features relate to online transparency and financial reporting quality, as well as how these two accountability dimensions are related. To fulfill this objective, we have used the Structural Equation Modeling, Partial Least Squares (PLS-SEM) approach. The focus of our analyses is on Spanish central government agencies. The size of, and a greater presence of independent members in, the governing body are explanatory factors behind the quality of the financial reports. Our findings also show that the quality of the financial information is also affected by the pressure that Eurostat requirements -deficit limits- puts on public sector entities, which leads to the use of smoothing practices. Online disclosure practices are not explained by the features of the governing body, but by the size of the agencies and their financial results. The better the financial reporting quality, the higher the online disclosure levels.

Highlights

A major reason for the research interest in governance practices is the increase in demand for greater managerial accountability and responsibility after a number of accounting scandals [1]
Our findings show that the quality of the financial information is affected by the pressure that Eurostat requirements -deficit limits- puts on public sector entities, which leads to the use of smoothing practices
Research has shown the positive effect of good governance practices on transparency, financial performance, financial reporting and holding managers accountable

Summary

Introduction

A major reason for the research interest in governance practices is the increase in demand for greater managerial accountability and responsibility after a number of accounting scandals [1]. Most of this research has focused on the features of the board of directors, because it plays a key role in the development internal control systems [2] and accountability levels [3]. Research has shown the positive effect of good governance practices on transparency, financial performance, financial reporting and holding managers accountable (see e.g., [4,5]). Initiatives for developing guidelines and better practices in public sector governance have been in the agenda of most Western countries for more than 25 years, for improving stakeholder engagement and demonstrating that public entities have reliable administrative structures that enable them to be efficient and effective.

Objectives

Results

Discussion

Conclusion