Assessing financial distress where bankruptcy is not an option: An alternative approach for local municipalities Sotirios Karatzimas Hot

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Uploaded by Sotirios Karatzimas     Uploaded date: July 12, 2014    
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Publication date
April 01, 2012
Paper language
Abstract
The goal of this paper is to build an operational model for evaluating the financial viability of local municipalities in Greece. For this purpose, a multicriteria methodology is implemented combining a simulation analysis approach (stochastic multicriteria acceptability analysis) with a disaggregation technique. In particular, an evaluation model is developed on the basis of accrual financial data from 360 Greek municipalities for 2007. A set of customized to the local government context financial ratios is defined that rate municipalities and distinguish those with good financial condition from those experiencing financial problems. The model’s results are analyzed on the 2007 data as well as on a subsample of 100 local governments in 2009. The model succeeded in correctly classifying distressed municipalities according to a benchmark set by the central government in 2010. Such a model and methodology could be particularly useful for performance assessment in the context of several European Union countries that have a similar local government framework to the Greek one and apply accrual accounting techniques.
Preferred Citation
Cohen, S., Doumpos, M., Neofytou, E., & Zopounidis, C. (2012). Assessing financial distress where bankruptcy is not an option: An alternative approach for local municipalities. European Journal of Operational Research, 218(1), 270-279.
Keywords
Local governments; Financial distress; Multiple criteria analysis; Financial ratios; Greece
Email
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Category
Financial accounting
Type of Paper
Published paper

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