Accrual-Based Accounting and Fiscal Performance: Empirical Evidence from Higher Education Institutions

Abstract

This study aims to advance our knowledge about the role of accrual accounting regimes in financial decision-making process at Higher Education Institutions. The advantages of accrual accounting in the public sector are well documented from the theoretical perspective. However, empirical findings are relatively rare and primarily rely on either normative arguments or storytelling narratives drawn from case studies. Our paper intends to fill this void by combining archival and survey data from higher education institutions. We investigate whether and to what extent universities with accrual accounting enhance fiscal performance. Based on the results of Mahalanobis distance matching and regression with matched pairs, accrual accounting regimes have a small but positive impact on reducing the debt ratio of such institutions. This paper has the potential to provide information regarding the intended effects of accrual accounting on public organizations.

Keywords:

• Accrual accounting
• fiscal performance
• higher education institutions
• Mahalanobis distance matching

Notes

1 Thus, all other things are equal if the public organization changes a pension policy that will result in higher pension payments in the future, comprising the estimated discounted sum of those additional payments (Boothe, 2007, p. 181). As Bergmann et al. (2019) noted, it is quite surprising that cash has long been considered the only influential source of information in the public sector.

2 This data was collected from the Korean Education Statistics Service (KESS) https://kess.kedi.re.kr/eng/index

3 The objective data were collected from the official government website Daehakalimi (www.academyinfo.go.kr) and Edu Data System (EDSS).

4 However, net flow of cash is only measured within Research and Foundation Fund for each university, which is a sub-set of total net cash flow.

5 Propensity score matching is an alternative method to find the balanced set of treated and untreated samples. However, King & Nielsen (2019) argues that MDM is preferred since MDM creates pairs close to covariate values while PSM does not. King & Nielsen (2019) further recommend the set of practices that either complements PSM or uses MDM.

6 The distance is defined as (d-v)^TC^-1(u-v), where u and v are the values of the matching variables for treated and controlled, while C is the sample covariance matrix of the matching variables.

7 Small sample issues in regression with matching would be problematic to generate consistent estimates. One alternative method is to use Bayesian method. Bayesian methods do not rely on asymptotics, a property that can be a hindrance when employing frequentist methods in small sample contexts. Although Bayesian methods are better equipped to model data with small sample sizes, estimates are highly sensitive to the specification of the prior distribution.

8 Although it is not the priority of this article, questioning the relationship between transparency and accountability is important because it elaborates researchers to reconsider the descriptive validity of prevailing narratives, especially in the public finance management domain (Columbano, 2022). Relatedly, the disclosure theory may yield insights on the benign causes that lead public organizations to resist accounting reporting reforms if the cost of implementing new regime is excessive when compare to the expected benefits (Columbano, 2022 for more detail).

Additional information

Funding

The data collection was supported by the Center for Organizational Diagnosis and Evaluation at Seoul National University.

Notes on contributors

Jin Kim

Jin Kim is an associate research fellow at Korea Research Institute for Local Administration, Republic of Korea. Her primary research interests include public finance and accounting, and public management including corruption.

Il Hwan Chung

Il Hwan Chung is an associate professor in the Department of Public Administration and Graduate School of Governance at Sungkyunkwan University, Republic of Korea. His primary research interests include public finance, budgeting and education policy.