Efficiency as a Determinant of Financial Condition: An Assessment of Italian and Spanish Local Governments

ABSTRACT:

Efficiency is considered a strategic tool in local governments (LGs) and several studies have investigated this delicate issue. However, the previous literature has rarely examined if a relationship between efficiency and financial condition does exist. Accordingly, based on a large sample of Italian and Spanish LGs with more than 50,000 inhabitants, the authors aim to investigate the potential impact of the efficiency of LGs on their financial health. Empirical findings, which are obtained from a model based on a stochastic parametric approach to measure efficiency, suggest the existence of such impact, even if it is conditioned by the type of expenditure, the political ideology of the government, and by the national and macroeconomic environments.

NOTE

Notes

1 In the literature, different distributions have been assumed. The most frequently used are half-normal, exponential (Jondrow et al. 1982), and truncated (Greene 1993). Here, we assume truncated distribution because the stochastic frontier model for panel data implemented in Stata modeled this error term as a truncated-normal random variable.

Additional information

Notes on contributors

Beatriz Cuadrado-Ballesteros

Beatriz Cuadrado-Ballesteros ([email protected]) is Assistant Professor at the University of Salamanca (Spain), where she received her Ph.D. in Business and Economics. She is a member of the Multidisciplinary Institute for Enterprises (IME). Her current research interests are public management, accountability, financial sustainability, and accounting standards. She has published her research in relevant international journals and has attended many international conferences in accounting and public sector. She was Visiting Researcher at the University of Edinburgh-Business School and the University of Salerno.

Marco Bisogno

Marco Bisogno ([email protected]) is an associate professor in Accounting at the University of Salerno. He received his Ph.D. from the University of Naples “Federico II.” His current research interests are public sector accounting, disclosure, transparency and accountability, financial sustainability and financial distress, public sector consolidated financial statements, and intellectual capital. He serves as editor of Cogent Business & Management and he is a member of the editorial board of several international journals.