The Effect of New Legislation on the Disclosure of Performance Indicators: The Case of Spanish Local Governments

Abstract

This article analyzes the effect of new accounting legislation on the disclosure of performance indicators in the financial statements of Spanish local governments. Based on agency and institutional theories, the article also assesses whether the disclosure of performance indicators is used to make the monitoring of local government performance easier for stakeholders or merely to project an image of good management. The results show that the enactment of new legislation has only led to a partial implementation, most local governments disclosing financial and budgetary indicators but very few providing indicators related to the performance of public services. The institutional theory (symbolic value) seems to be the rationale that best explains this pattern of disclosure.

Keywords:

• financial
• budgetary and service performance indicators
• Spanish local governments
• accountability

Notes

This study has been carried out with the financial support of the Spanish National R&D Plan through research project ECON2010-17463 (ECON-FEDER).

¹Three classifications of isomorphism are proposed (DiMaggio & Powell, 1983): a) coercive, which results from both formal and informal pressure imposed on an organisation by legal, hierarchical, or resource dependence (in the case of local governments, from central or regional governments); b) mimetic, in which organisations imitate practices and models of leading organisations in their institutional field in an attempt to gain greater recognition, becoming, in this case, passive adopters of innovations; and c) normative, which stems from environmental pressure for transformation from stakeholders such as politicians, financial institutions, scholars and multilateral organisations, as well as from specialized groups within a profession who try to define the conditions and method of work.

²Orden EHA 4041/2004 of 23rd November (Instrucción Contable de las Administraciones Locales) and its appendix APLG (Plan General de Contabilidad adaptado a la Administración Local).

³Legislation in Spain (art. 212 Texto Refundido Ley Reguladora de las Haciendas Locales) only requires that the annual accounts be available to the general public for a period of 15 days during the months of June–September. In practice, this means that interested parties have to go to the city council premises to consult the accounts.

⁴The omitted services are related to general services of the local government (computer services, staff and administrative organization, economic and financial services) and to very specific areas within the health and social services (control of food, mental health and social reinsertion). The services we have added are related to the management of licenses, permissions, and other documents, breakdown truck service, and special use/occupation of public domain.

⁵The search for annual accounts and APLG indicators in municipalities' websites was made during November 2008 and repeated during May 2009.

⁶This “Number of services” may be different to the “Total number of services” of Table 3, since, as has been said, some of the services did not fit onto the list of services defined in Table 4.