The effect of debt intensity on the asymmetric cost behavior: empirical evidence from local governments
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Uploaded by Sotirios Karatzimas
Uploaded date: November 02, 2024
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Publication date
January 01, 2024
Paper language
Abstract
Purpose – This study explores the relationship between debt intensity and cost stickiness at the local
government level, a setting characterized by the existence of debt constraints and political influence.
Design/methodology/approach – Building on a theoretical framework informed by the concepts of coercive
isomorphism and accountability, the present study focuses on Greek municipalities and applies Anderson
et al.’s (2003) extended methodology, as reviewed by Banker and Byzalov (2014), in a sample of 1,366
municipality year observations for the period 2011–2020.
Findings – The results indicate that the degree of cost asymmetry is negatively associated with debt intensity.
Periods before elections present the same picture. This negative relationship becomes insignificant in the case
of large municipalities, which probably require more resources to support their operations and incur higher
adjustment costs for reducing resources. These findings are robust to use alternative types of expenses
associated with cost stickiness and a battery of control variables.
Originality/value – Little is known about the impact of debt level and financial constraints on cost behavior
in the public sector context. This study takes a fresh look at the relationship between municipal debt structure
and cost stickiness, adding to the understanding of cost behavior considering the debt level, financial
constraints, resource-adjustment costs and the underlying managerial behavior.
government level, a setting characterized by the existence of debt constraints and political influence.
Design/methodology/approach – Building on a theoretical framework informed by the concepts of coercive
isomorphism and accountability, the present study focuses on Greek municipalities and applies Anderson
et al.’s (2003) extended methodology, as reviewed by Banker and Byzalov (2014), in a sample of 1,366
municipality year observations for the period 2011–2020.
Findings – The results indicate that the degree of cost asymmetry is negatively associated with debt intensity.
Periods before elections present the same picture. This negative relationship becomes insignificant in the case
of large municipalities, which probably require more resources to support their operations and incur higher
adjustment costs for reducing resources. These findings are robust to use alternative types of expenses
associated with cost stickiness and a battery of control variables.
Originality/value – Little is known about the impact of debt level and financial constraints on cost behavior
in the public sector context. This study takes a fresh look at the relationship between municipal debt structure
and cost stickiness, adding to the understanding of cost behavior considering the debt level, financial
constraints, resource-adjustment costs and the underlying managerial behavior.
Preferred Citation
Karatzimas, S., Naoum, V. C., & Seretis, P. (2024). The effect of debt intensity on the asymmetric cost behavior: empirical evidence from local governments. Journal of Public Budgeting, Accounting & Financial Management, 36(4), 514-535.
Keywords
Cost behavior; Cost stickiness; Debt; Local government; Municipalities; Sticky cost theory
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Category
Management accounting
Type of Paper
Published paper
How to get the paper
From the journal
