Abstract: Context: In the Nineties, almost all public administrations of European countries have been affected by a change that made municipalities more responsible in using public resources. In particular, Italian government introduced the procedure of “financial default” for local authorities in financial difficulties (Decree Law 66/1989). Problem: The early years of introduction of the procedure have been characterized by a high number of defaults but later on the phenomenon diminished. More recently, the global crisis and the gradual cutting of transfers from the State led to significant repercussions on the budgets of local authorities with an increasing trend towards externalizations. This resulted in a further increase in the number of financial defaults. However, to date a methodology to constantly monitor the local authorities’ "health" and to prevent financial defaults has not yet been formalized. Purpose: The study aims to construct a set of specific indicators with which to judge the default risk of Italian LAs. Financial health is a necessary condition under which governments must operate as there is a close link between financial condition and service delivered. Theoretical framework: Scholars in Italy and abroad have written a great deal about businesses in crisis, but studies on LAs in crisis are relatively rare and frequently address the issue from a political economy viewpoint. An important aspect of the default risk is the proxy used in order to discriminate financially unhealthy local governments from the healthy ones. Several variables have been proposed such as ratio indicators or the quantity, quality and cost of service delivery. Methodology: in this research we use a deductive method as being the only one possible considering the special characteristics of bodies examined and of their balance sheet. The research was carried out in seven different steps according to the logical process in identifying the risk indicators and the consequent risk ranges. Finding: Results are significant as they propose a set of specific risk indicators to evaluate the risk of default of an Italian local authority. Originally, value and practical implications: The results have clarified the situation leading potentially to default. Seen from the perspective of scientific enquiry, by calculation of specific risk indicators, we see that the causes frequently indicated by the institutions (Court of Auditors and Ministry of the Interior) and technical experts (Ifel) give fundamental information to control and prevent defaults. The results from the scientific viewpoint could potentially interest and enrich the institutional outlook. The analysis demonstrates that it is possible to individuate the early symptom of default. This logical process could easily be adopted at an international level, with the necessary modifications for specific accounting regimes.

The use of financial indicators to evaluate the default risk of a local authority: evidence from Italy / E. Gori; S. Fissi. - In: CONFERENCE ON PERFORMANCE MEASUREMENT AND MANAGEMENT CONTROL. - ISSN 2295-1660. - (2013), pp. 1-21. (Intervento presentato al convegno 7th Conference on Performance Measurement and Management Control tenutosi a Barcellona nel 18-20 sept 2013).

The use of financial indicators to evaluate the default risk of a local authority: evidence from Italy

GORI, ELENA;FISSI, SILVIA
2013

Abstract

Abstract: Context: In the Nineties, almost all public administrations of European countries have been affected by a change that made municipalities more responsible in using public resources. In particular, Italian government introduced the procedure of “financial default” for local authorities in financial difficulties (Decree Law 66/1989). Problem: The early years of introduction of the procedure have been characterized by a high number of defaults but later on the phenomenon diminished. More recently, the global crisis and the gradual cutting of transfers from the State led to significant repercussions on the budgets of local authorities with an increasing trend towards externalizations. This resulted in a further increase in the number of financial defaults. However, to date a methodology to constantly monitor the local authorities’ "health" and to prevent financial defaults has not yet been formalized. Purpose: The study aims to construct a set of specific indicators with which to judge the default risk of Italian LAs. Financial health is a necessary condition under which governments must operate as there is a close link between financial condition and service delivered. Theoretical framework: Scholars in Italy and abroad have written a great deal about businesses in crisis, but studies on LAs in crisis are relatively rare and frequently address the issue from a political economy viewpoint. An important aspect of the default risk is the proxy used in order to discriminate financially unhealthy local governments from the healthy ones. Several variables have been proposed such as ratio indicators or the quantity, quality and cost of service delivery. Methodology: in this research we use a deductive method as being the only one possible considering the special characteristics of bodies examined and of their balance sheet. The research was carried out in seven different steps according to the logical process in identifying the risk indicators and the consequent risk ranges. Finding: Results are significant as they propose a set of specific risk indicators to evaluate the risk of default of an Italian local authority. Originally, value and practical implications: The results have clarified the situation leading potentially to default. Seen from the perspective of scientific enquiry, by calculation of specific risk indicators, we see that the causes frequently indicated by the institutions (Court of Auditors and Ministry of the Interior) and technical experts (Ifel) give fundamental information to control and prevent defaults. The results from the scientific viewpoint could potentially interest and enrich the institutional outlook. The analysis demonstrates that it is possible to individuate the early symptom of default. This logical process could easily be adopted at an international level, with the necessary modifications for specific accounting regimes.
2013
Proceedings of the 7th Conference on Performance Measurement and Management Control
7th Conference on Performance Measurement and Management Control
Barcellona
18-20 sept 2013
E. Gori; S. Fissi
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Utilizza questo identificatore per citare o creare un link a questa risorsa: https://hdl.handle.net/2158/822086
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