An Exploration of Municipal Financial Disclosure and Certain Dimensions of Political Culture
Malone, David, Academy of Accounting and Financial Studies Journal
The study reported herein posits a relationship between the extent of municipal financial disclosure and the political culture of that municipality. Municipal financial disclosure is framed as a monitoring device, serving as a communication tool between municipal government and interested users of that information. Political culture is principally a measure of the interaction between a government and its citizenry. The study builds an argument that when there is a significant amount of interaction between a municipal government and its related population (ie., the political culture construct), the level of disclosure will be greater. The study finds a positive relationship between the political culture of a municipality and the amount of information dissemenated by that municipal government.
Watts and Zimmerman (1990), in an assessment of a decade of positive theory research, asserted that most positive theory studies have focused on three types of variables in explaining management disclosure choice: those associated with management incentives, debt constraints, and political costs. With respect to entities within the private sector, political costs arise as a result of increased exposure. Most often, this has been related to the size of the entity, and studies have probed the relationship between firm size and levels of disclosure (e.g., Depoer ,2000; Malone, 1994; Chow and Wong-Boren, 1987; Buzby, 1975; and Singhvi and Desai, 1971). Extent of disclosure has also been extended to institutions of higher learning, in which systematic relationships between not only traditional measures (e.g., institution size) but also service-related factors were found positively related to extent of disclosure (Gordon, et.al., 2002.) Municipalities have also been studied for the relationship between size and extent of disclosure (Plewa, 1983). This study moves beyond the use of size and other traditional variables in explaining the level of disclosure. Political culture is a measure of a certain dimension of the "personality" of a municipality, dealing primarily with the relative interaction between the government of a municipality and its population. This study offers evidence that the level of that interaction will influence levels of disclosure by the municipality.
Specifically, using a positive theory of predicting institutional behavior, this study posits that in an environment where political culture tends more toward a moralist perspective (higher levels of interaction), exposure of the municipality and participation by the populace are high, and thus the level of monitoring will be increased. For a municipality that tends more toward a traditionalist perspective (lower levels of interaction), exposure of the municipality and participation by the populace are low, and the level of monitoring will be lower.
The results of the study indicated a correlation between extent of disclosure and five of nine variables measuring relatively narrow dimensions of political culture, two of three somewhat broader dimensions of political culture, and with the broadest measure of political culture adopted by the study. Additionally, the study examined the relationship between extent of municipal financial disclosure and five traditional constructs and judged two of those correlations to be significant.
The remainder of the paper discusses the literature associated with extent of disclosure and political culture, research questions and hypotheses, methods to test the hypotheses, analysis of data and results, and conclusions and recommendations for further study.
REVIEW OF THE LITERATURE
Cerf (1961) seems to have been the first to measure the extent of financial disclosure through the construction of an index. Others that followed measured extent of disclosure using various indices of disclosure, sometimes with analyst weightings, and at other times not. …