Explanatory factors for the use of the financial report in decision-making: evidence from local government in Portugal

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R E V I S T A

D E

C O N T A B I L I D A D

S P A N I S H

A C C O U N T I N G

R E V I E W

w w w . e l s e v i e r . e s / r c s a r

Explanatory

factors

for

the

use

of

the

ﬁnancial

report

in

decision-making:

Evidence

from

Local

Government

in

Portugal

夽

Sónia

Paula

S. Nogueira

a,∗

_,

_Susana

_Margarida

_F.

_Jorge

b

a_Afﬁliated_Researcher_at_CICP_(Research_Centre_in_Political_Science),_Department_of_Juridical_and_Business_Sciences,_EsACT,_Polytechnic_Institute_of_Braganc¸_a,

StJoãoMariaSarmentoPimentel–Apt.128,5370-326Mirandela,Portugal

b_Afﬁliated_Researcher_at_CICP_(Research_Centre_in_Political_Science),_Faculty_of_Economics,_University_of_Coimbra,_Av._Dias_da_Silva,_165,_3004-512_Coimbra,_Portugal

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Articlehistory: Received29March2015 Accepted25September2015 Availableonline24December2015 JELclassiﬁcation: H83 M41 M48 Keywords: LocalGovernment Financialreporting Usefulness Determinantfactors

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Thisstudyaimstoidentifytowhatextentcertainfactorsperceivedbyinternaldecision-makers (politi-ciansandfinancialofficials)influencetheusefulnesstheyconsidertheinformationpresentedinthe financialreportsofmunicipalitieshasfordecision-makingpurposes.

Itfollowsaquantitativeresearchapproachataﬁrststage,usingaquestionnaire.Atasecondand complementarystage,itusesaqualitativeresearchperspective,withinterviewsinasmallgroupof municipalities,whichmightbeseenascasestudies,inordertoexploreandunderstandthe(externaland internal)contextualfactorsthatdeterminetheusefulnessoftheﬁnancialreportindecision-makingby internaldecision-makers.

Themainfindingsshowthatthepressureofprofessionalorganizationsandofanationalproblem (externalfactors),aswellasthelackofknowledgeandtrainingontheaccountinginformationsystem (internalorganizationalfactor)arefactorsthatmostinfluencetheusefulnessofthefinancialreportfor internaldecision-making.Qualitativeanalysisconfirmstheseresults,reinforcingafactorrelatingtoa workoverload.

Twoimportantimplicationsofthisstudyarethefollowing:first,professionalbodiesandthefinancial situationinthecountry;whilestimulatinginformationalneedsbyinternalusersinthepublicsector theydeterminetheusefulnesstheyoffertofinancialreportingfordecision-making.Second,thelackof knowledgeoftheaccountinginformationsystem,especiallybylocalpoliticians,isahinderingfactorof theusefulnessgiventofinancialreportingforinternaldecision-making.Nowadays,whenmanycountries areconsideringreformsofpublicsectoraccountinginlinewiththeInternationalPublicSectorAccounting Standards(IPSAS),supposedlyincreasingthesophistication,thelevelofinformationandusefulnessof financialreporting,suchfactorsmustbetakenintoaccount.

Factores

explicativos

de

la

utilidad

del

informe

ﬁnanciero

para

la

toma

de

decisiones:

evidencia

del

gobierno

local

en

Portugal

CódigosJEL: H83 M41 M48 Palabrasclave: Gobiernolocal Informeﬁnanciero Utilidad Factoresdeterminantes

r

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s

u

m

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n

Esteestudiobuscaidentificarhastaquépuntoalgunosfactorespercibidosporlosdecisoresinternos (políticosytécnicos)influyenenlautilidadqueellosconcedenalainformaciónpresentadaenelinforme financierodelosayuntamientosparalospropósitosdetomadedecisión.

Sigueprimeramenteunenfoquecuantitativo,conuncuestionario.Enunasegundafase complemen-taria,seempleaunaperspectivadeinvestigacióncualitativa,conentrevistasaunpeque ˜nogrupode ayuntamientosquesepuedenconsiderarestudiosdecaso,demodoqueexploranyentiendenlos fac-torescontextuales(externoseinternos)quedeterminanlautilidaddelinformeﬁnancieroparalatoma dedecisionesporlosdecisoresinternos.

夽 SponsoredbyFCT(UID/CPO/00758/2013). ∗ Correspondingauthor.

E-mailaddress:sonia@ipb.pt(S.P.S.Nogueira). http://dx.doi.org/10.1016/j.rcsar.2015.09.002

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Losprincipalesresultadosmuestranquelapresióndeorganizacionesprofesionalesydeunproblema nacional(factoresexternos),asícomolafaltadeconocimientosobreelsistemadeinformacióncontable (factorinternoorganizacional),sonlosfactoresquemásinfluyenenlautilidaddelinformefinancieropara lasdecisionesinternas.Elanálisiscualitativoconfirmaestosresultados,reforzandootrofactorrelacionado conlasobrecargadetrabajo.

Dosimportantesimplicacionesdeesteestudiosonlassiguientes.Enprimerlugar,losorganismos profe-sionalesylasituaciónfinancieradelpaís,mientrasestimulannecesidadesinformativasenlosdecisores internosenelsectorpúblico,determinanlautilidadqueellosconsideranparaelinformefinancieroparael propósitodetomadedecisiones.Ensegundolugar,lafaltadeconocimientosobreelsistemade informa-cióncontable,particularmentedelosdecisorespolíticos,esunfactorinhibidordelautilidaddelinforme financieroparalatomadedecisiones.Actualmente,cuandomuchospaísesseplanteanreformasdela contabilidadpúblicaparaaproximarsealasIPSAS,supuestamenteparaaumentarlasofisticación,elnivel deinformaciónylautilidaddelinformefinanciero,talesfactoresdebenseratendidos.

Introduction

Thedecision-makingprocesstendstobesimilarinall organi-zations,evenifthedecisionsconcernparticularissues eitherin thepublicorprivatesectors.Theeffectivenessofdecisionmodels dependsonthecircumstancesthatshapetheorganization(Tarter &Hoy,1998).

The reformsintroduced in the management and accounting structuresofpublicsectorentities,inresponsetoNewPublic Man-agement requirements, reinforcethe role of accountability as a meanstoimproveeconomy,efﬁciencyandeffectivenessin Pub-licAdministration.Accountabilityisnolongerconceivedasmerely reportingaboutcomplyingwithnormsandprocedures,butasthe needtoreportontheallocationanduseofpublicresourcesandthe resultsattained,inordertoallowassessingpublicofﬁcials’ respon-sibilities(Brusca,2010;Hookana,2008;Lapsley,1999,2001,2009; Mir&Rahaman,2007;Neilson&Gregor,2007;TerBogt&Van Helden,2000;TerBogt,2008).Consequently,theleadersof pub-licsectororganizations,namelyinLocalAdministration,nowadays needusefulinformationtobeabletomakebetterdecisions.

In thiscontext, theparadigmof informationusers and their needsisofchiefimportancewhilereformingtheaccountingand ﬁnancialreportingsystems.

Organizationalchanges(inmanagement andaccounting)can potentially beaffectedbya setof external and internalfactors thatshouldbetakenintoaccountinthedecision-makingprocess, namelyconcerningthepreparation and disseminationofuseful informationfordecisions(Haldma&Lääts,2002).Inthissphere, complementingtheparadigmoftheinformationusefulness, con-tingency and institutional theories can beused to supportthe analysisof(internalandexternal)explanatoryfactorsofthe useful-nessoftheﬁnancialreportingfordecision-making,inthecontext ofLocalGovernment.

Relevantliteratureindicatesthattheusefulnessoftheﬁnancial reportinginformationforthepurposeofdecision-makingdepends onvariousfactorsin theentities’context. Severalauthors (e.g.,

Cohen,Kaimenakis,&Zorgios,2007;Grossi&Reichard,2009;Mack &Ryan,2006;Mack,2004)concludedthat thedegreeofuseof ﬁnancialinformationfordecision-makingvariesasafunctionof itsusefulnessforthatpurpose.GrossiandReichard(2009)found thattheuseofﬁnancialinformationdependsalsoonvarious orga-nizationalfactors,suchasthelackofappropriateknowledgeand trainingregardingtheaccountingandreportingsystem.

This study aims to identify the (external and internal) explanatory factors of the financial reporting usefulness for internal decision-making through an empirical analysis of the 308 Portuguese municipalities. To fulfill this purpose, a quan-titative analysis was firstly developed (by applying a survey),

complementedbyqualitativeexploratorycasestudies(resorting tointerviews).Theoptionofcasestudiesofthisnatureisjustiﬁed bytheintentiontoexploreandunderstandwhichinternaland con-textualfactorsoflocalauthoritiesmightdeterminetheusefulness ofﬁnancialinformationforinternaldecision-making byinternal decision-makers.

Theinvestigationcontributestotherelevantdebateonwhich factorsdeterminetheusefulnessoftheinformationpresentedin theﬁnancialreporting,particularlythatpreparedbylocal author-ities.Asfarasweknow,thisistheﬁrstinvestigationcarriedoutto thiseffectinthecontextofPortuguesemunicipalities.

Additionally,theresultsofthestudyareintendedtostimulate interestintheidentificationoffactorsthatpossiblyaffectthe use-fulnessoffinancialreportinginseveralpublicsectorrealitiesat internationallevel.Inthecurrentcontextwheremanycountries areconsideringorintheprocessofadaptingtheirpublicsector accountingsystemstoIPSAS,supposedlyincreasingthe sophisti-cation,levelofinformationandusefulnessoffinancialreporting, suchfactorsmustbeattendedinthereformingprocesses.

Thepaperfollowsstructuredinthreemainsections.“Literature review”section presents thetheoreticalframework, addressing explanatorytheoriesofreformsinpublicsectoraccountingand rel-evantliteratureonfactorspossibleofdeterminingtheusefulnessof financialreporting,particularlyfordecision-making.“Determinant factorsoftheusefulnessoffinancialreportingforinternal decision-makinginLocalGovernment”presentstheempiricalstudy,starting bybriefly describing theobjectives,methodologyand hypothe-ses,datacollectionandanalysistechniques,andfinally,presenting anddiscussingtheresults.“Conclusionsandpolicyimplications” summarizesthemainconclusionsandpolicyimplications.

Literaturereview

Explanatorytheoriesofreformsinpublicsectoraccounting

Inrecentyearstherehasbeenaproliferationofempiricalstudies basedonsocialsciencetheories,namelyontheorganizational the-ory,seekingtoexplainorganizationalchangeandreformsadopted inthepublicsector,includingthoseofﬁnancialmanagementand accounting systems(Brignall &Modell,2000; Burns& Scapens, 2000;Caccia&Steccolini,2006;Lapsley&Pallot,2000;Scapens, 1990,1994;TerBogt,2008;TerBogt&VanHelden,2000).More precisely,theauthorshaveattemptedtounderstandthereasons for the existing gap between regulationsand accounting prac-ticesadoptedbyorganizations,aimingtounderstandwhetherthe reforms in thescopeof the New Public Financial Management (NPFM)wereintroducedinordertoovercomethereallimitations

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ofaccountinginformationandreportingsystemsorsimplyto com-plywithlegislativerequirements.

Thedecision-makingprocesstendstobesimilarinall organiza-tions,evenifdecisionsconcernparticularissuesoforganizations eitherinthepublicorintheprivatesector.Theeffectivenessof decisionmodelsdependsonthecircumstancesthatshapethe orga-nization(Tarter &Hoy,1998).Organizationalchanges inpublic entities,facedwiththenewdemandsofNPM/NPFM,triggerednew informationneedsfordecision-making.Decision-makersnowneed usefulandopportune information tobeable tomakethemost suitabledecisions,highlighting theimportanceoftheparadigm ofinformationusersandtheirneeds.Nevertheless,organizational changes canpotentially beaffected bya series of external and internalfactorsthatshouldbeconsideredinthedecision-making process(Haldma&Lääts,2002).

Here, contingency and institutional theories can beused to explain thereforms in publicsectoraccounting, particularlyto explore factorspossibly affectinginformation usefulnessin the decision-makingprocessinthecontextofpublicsectorentities, namelylocalauthorities.

Contingencytheory

Thecontingency theoryis a theoretical perspective of orga-nizational behavior that emphasizes the way contingencies or restrictions,suchassize,environmentaluncertainties,technology andenvironmentalpressures,affectorganizations’development andfunctioning(Chenhall,2003;Thomas,1991).Ittriestoidentify therelationshipsbetweenanorganization’s internaland exter-nalcharacteristicsanditsmanagementcapacity(Ryan,Trevor,& Nelson,2002).

According to this framework, contingencies or restrictions inﬂuenceorganizations’structureintermsoftraining, specializa-tion,differentiationandbureaucratization(Covaleski,Dirsmith,& Samuel,1996).

Regardingaccountingandﬁnancialreportingsystems,the con-tingencytheoryis“basedonthepremisethatthereisnouniversally appropriateaccountingsystemwhichappliesequallytoall orga-nizationsinallcircumstances”(Otley,1980:413).Therefore,there isnotauniversalmodelofacontrolandaccountingsystem suit-able for and applicable to all organizations and circumstances (Anessi-Pessina,Nasi,&Steccolini,2008).Organizationswillhave toadoptnewaccounting practices seekinga betteradjustment between their administrative systems and contingency factors (Anessi-Pessinaetal.,2008;Woods,2009).Thedesignofanew accountingsystemwilldependontheorganization’scapacityto recognizeandadapttochangesasafunctionofexternaland inter-nalfactors.

Althoughthecontingencytheory hasbeendeveloped inthe private sector, and greatly used in the scope of management accounting,somestudieshaveusedthecontingencyperspective inexplainingreformsinpublicsectormanagementand account-ing,investigatingparticularlytheintroductionofnewsystemsfor measuringandmanagingperformance,aswellnewaccountingand reportingsystems(Anessi-Pessinaetal.,2008;Lüder,1992,2002; Pollitt&Bouckaert,2004;Woods,2009).

Institutionaltheory

Withintheliteratureoforganizationaltheory,theinstitutional theoryconsidersthatexpectationsandvalues,bothinsideand out-sideorganizations,aswellastherulesofsociety,canalsoplaya roleinthedecisiontointroduceorganizationalchanges,namely concerningtheaccountingsystem.Itsupportsthatorganizations acquirelegitimacyiftheyadapttoexternalexpectations,i.e.,there ispressuretointroducecertainaccountingpracticeswithoutdue considerationofwhetherthesewillbringbeneﬁt(Geiger&Ittner, 1996).

Thisinstitutionalapproachdiffersfromothertheoriesofa ratio-nalistnature,byunderstandingthateconomic,social,politicaland culturalphenomenamakeuptheinstitutionalenvironment, form-ingthemeaningofconceptssuchasindividual,socialaction,State andsociety(Carpenter&Feroz,2001;Carpenter,Cheng,&Feroz, 2007;DiMaggio&Powell,1991;Meyer&Rowan,1991;Modell, 2004;Ryanetal.,2002).

Withinthescopeofthepublicsector,inrecentyears,the institu-tionaltheory(namelytheNewInstitutionalSociologystream)has beenfrequentlyusedbyvariousresearcherswhoseekto under-standorganizational change in this context (Brignall &Modell, 2000;Grossi&Reichard,2009;Lapsley&Pallot,2000;TerBogt, 2008;TerBogt&VanHelden,2000).

Theinstitutionaltheoryhasbeenusedtoexplainhow organiza-tionsrespondtothepressuresoftheirinstitutionalenvironments (Carpenter&Feroz,2001;Carpenteretal.,2007;Chapman,Cooper, &Miller, 2009).It seeks toidentify a seriesof external factors that canpressurizeor inducetheprocess ofinternal changein ordertogainexternallegitimacy(DiMaggio&Powell,1991;Lapsley &Pallot,2000;Meyer&Rowan,1991).Organizations’tendency towardsuniformityinrelationtotheirinstitutionalenvironment wascalledbyDiMaggioandPowell(1991)as“isomorphism”.The processbywhichorganizationstendtoadoptthesamepractices andstructuresovertime,inresponsetoinstitutionalpressures(so astoself-defencewhenfacingproblemsforwhichtheydonotyet havetheirownsolutions),isnamedinstitutionalisomorphism.

Isomorphicchangecanoccuraccordingtothreemechanisms (DiMaggio&Powell,1991):coercive(resultingofformaland infor-malpressureexertedonorganizationsbyotherorganizationsand society’sexpectations,inasharedlegal,economicandpolitical con-text,aswellasformalandinformalpressureexertedbytheState, whichleadsorganizationstomakeadecisiontoadoptacertain practice);normative(arising fromtheprofessionalizationwhich formsasetofdelimitednormsandproceduresforaspeciﬁc occu-pationoractivity;thistypeofisomorphismoccursastheresult ofsharedvaluesandideasaboutsuitablebehavior,oftenspread throughprofessionalandacademicgroups);andimitative (occur-ringinconditionsofuncertaintyanddiminishedstability,when organizationsimitate practices already tested and successfulin othersimilarorganizations).

Factorsaffectingtheinternalusefulnessofﬁnancialreporting The literature on public sector accounting and the above-referred theoreticalframeworks, supportthat theusefulness of ﬁnancial reporting for the decision-making process of internal users/decision-makersdependsonfactorsinsideandoutside pub-licsectororganizations,includinglocalauthorities(Askim,2008; Cohen,2009;Cohenetal.,2007;Grossi&Reichard,2009;Guthrie, 1998;Lee,2008;Mack&Ryan,2006;Pallot,1997;Paulsson,2006; Taylor,2009;Yamamoto,2008).

The traditional literature suggests that reasons of economic nature(to improve efficiency and effectiveness) have beenthe mainmotivationfororganizationalchange,namelytheusefulness of thefinancial reportingfor decision-making. However, inthe lightoftheorganizationaltheory,institutional(external)factors– competitiveness,government,professionalgroups,technologyand customers–andcultural(internal)factors–needforefficiency, professionalism,changeinthedynamicsof autonomy, sizeand complexityoftheorganization,andthesearchfororganizational strategies –have a prominent rolein explaining organizational change,includingthatofaccountingsystems(Benito,Bastida,& Mu ñoz, 2010; Burns & Scapens, 2000; Deegan, 2002; Scapens, 1994).

Regardingchangesintheaccountingandreportingsystemsand ﬁnancialinformationusefulness,overall,suchstudiesmentionas

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inﬂuencingfactors(Buylen&Christiaens,2013):institutionaland legalpressures,lackofunderstandingaboutthenewinformation preparedaccordingtotheaccrualbasis,lackofhumanresources andresistancetochange,amongothers.Somefactorsaredirectly relatedtotheindividualcharacteristicsandattitudesof decision-makers,othersaretheresultofcertaininstitutionalstandardsof therespectiveorganizationsandothersconcernoutside circum-stances.

Factorsassociatedwiththedecision-makers’individual char-acteristics–suchasskills,knowledgeandexperienceofconcepts andtoolsofﬁnancialmanagement(familiarity)–seemtobe par-ticularlyrelevantindeterminingthedegreeofusefulnesstheygive toﬁnancialinformation(Askim,2008;Paulsson,2006;Yamamoto, 2008).

Thedegreeoffinancialreportingdatausagefordecision-making isalsodependingonthe“decision-usefulness”ofthedata(seeMack &Ryan,2006,forthisconcept),whichconcernsthepotentialbenefit ofdatafortheuser(relevance,congruencewithexpectations,etc.) butitisalsoaquestionofreadabilityandunderstandabilityofthe financialinformation.GrossiandReichard(2009)explainthatthe demandforcertainsetsoffinancialreportingdatadependsvery muchonvariousindividualandinstitutionalfactors,like knowl-edgeorculture.Generally,theuseoffinancialinformationisaresult oftheinterplayofseveralsupply-sideand demand-siderelated influencefactors.

Consideringtheliterature reviewand theconclusionsofthe studiesreferredto,generally,externalfactorsareassumedtohave apositiveeffectontheuseoffinancialinformation,while inter-nalfactorshaveanegativeeffect(Askim,2008;Grossi&Reichard, 2009;Yamamoto,2008).Infact,external(institutional)pressures orcontingenciesmayincreasefinancialreportingusefulness,even generatingfurther(newanddifferent)information needs,given thatdecision-makerstendtoresorttofinancialreportingsoasto showhowtheyandtheorganizationstheyrun,decidetoreactto thosecircumstances.Internalorganizationalfactorsandindividual characteristicsandattitudesmay,ontheotherhand,resistagainst theexternal pressuresand limit theusefulness of thefinancial information.

Determinantfactorsoftheusefulnessofﬁnancialreporting forinternaldecision-makinginLocalGovernment

Objective,methodologyandhypotheses

Followingtheapproachesofcontingencyandinstitutional theo-ries,thisstudyaimstoidentifytowhatextentthefactorsperceived by respondents inﬂuence the usefulness they attribute to the informationpresentedinlocalauthorities’ﬁnancialreporting,for internaldecision-making,consideringthatthosefactorscanalso affecttheirinformationrequirements.

Giventheproposedobjective,thestudylooksforansweringthe question“Whichexternalandinternalfactorsinfluencetheusefulness ofthemunicipalfinancialreportingfordecision-makingbyinternal decision-makers(politiciansandfinancialofficials)?”.

Thestudyadoptsamixedresearchmethodology.Atafirststage, itfollowsaquantitativeresearchapproach,usingaquestionnaire; atasecondandcomplementarystage,itusesaqualitativeresearch perspective, resorting to the explanatory and exploratory case studymethod.Thechoiceofcasestudiesofthisnatureisjustified bythefactthatoneintendstoexploreandunderstandthe(external andinternal)contextualfactorsoflocalauthoritiesthatdetermine the financial reporting usefulness. The option for a qualitative researchmethodologytocomplementthequantitativeapproach is alsojustified by thefact that theformer allows for a better comprehensionofthesocialcontextthephenomenonstudiedis

partof,additionallycomplementingaspectsnotpossibletoobtain throughasurvey.

Forthequantitativepartofthestudy,thefollowingresearch hypothesesweredeﬁned,basedontheliteratureandtheoretical frameworkpresentedintheprevioussection:

H1. Factorsexternaltolocalauthoritiespositivelyinﬂuencethe usefulnessofﬁnancialreportingforinternaldecision-makingby municipaldecision-makers.

H2. Factorsinternaltolocalauthoritiesnegativelyinﬂuencethe usefulnessofﬁnancialreportingforinternaldecision-makingby municipaldecision-makers.

Datacollectionandanalysis

Regardingthequantitativedimensionofthestudy,a question-nairewasappliedtoallPortugueselocalauthorities(308),directed tointernaldecision-makers(politicians–memberofthe Execu-tiveresponsibleforthefinancedepartment;andofficials–head ofthelocalauthority’sfinancialdepartment1_)._The_{questionnaire}

wasessentiallydrawnuponevidencefromtheliteraturereview.2

Therefore,questions(inanordinalscalefrom1to5,where1isNot atallusefuland5isVeryuseful)wereintendedtoascertainthe use-fulness,forinternaldecisionmaking,ofobligatorybudgetaryand ﬁnancialstatementspresentedinmunicipalities’ﬁnancial repor-ting,according towhat isestablished inthe LocalGovernment accountingregulationcurrentlyinpracticeinPortugal,3_as_well_as

ofothereconomicandfinancialinformationvoluntarilyreported. Soastofindoutthedegreeofinfluence offactors,both exter-nalandinternaltolocalauthorities,intheusefulnessattributed tofinancialreportingforinternaldecision-makingbypoliticians and financial officials asmunicipal decision-makers,two ques-tionswereaskedwhilelistingavariedsetoffactors(inanordinal scale of 1–5, where 1 is Does not Influence and 5 is Influences Greatly).

Respondentswereselectedaccordingtotheirpredominantrole as municipalinternal decision-makers,hence principal internal users ofthelocalauthority’s financialreporting.Theoption for internalusersasthesubjectforsurveywasduetothefactthat thisgrouphasamajorroleinusingfinancialinformationproduced bythelocalauthority,followingNPMprinciples.Theresponserate wasapproximately49%,withthefinalsamplebeingmadeupof 302validresponses(94responsesfrompoliticiansand208from financialofficials).4

Table1presentsabriefcharacterizationoftherespondents,by region,showingthatmorethanone-thirdoftherespondentsinthe sample(34.11%)comesfrommunicipalitiesintheNorthregion, followedbythoseoftheCentreregion(28.48%).Theleast repre-sentedistheAutonomousRegionofMadeira,withonly2.98%of validresponses.

Astotherespondent groupsinmunicipalitiesbyregion,the mostrepresentativegroupinthesampleisthatoffinancialofficials fromtheNorthregion(35.10%),whiletheleastrepresentedgroup isthatofpoliticiansintheAutonomousRegionofMadeira(2.13%). ItisalsoobservedthatinallregionsofContinentalPortugaland in Madeira the number of financial officials as respondents is twiceormorethenumberofpoliticians.InAzores,however,the

1_Finance_Department_or_Finance_Division_or_Accounting_Section,_according_to_the

localauthority’smodeloforganizationalstructure.

2_The_questions_dealt_with_in_this_paper_are_just_a_part_of_a_more_wide-ranging

questionnaire.

3_Law-decree_n._54-A/99,₂₂_February_–_Ofﬁcial_Plan_of_Accounts_for_Local

Author-ities(POCAL).

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Table1

Characterizationofrespondentsbyregion.

Region Sample Populationa _%_{Sample/population}

Decision-makers Total Total

Politicians Financialofﬁcials

n % n % n % N % North 30 31.91 73 35.10 103 34.11 172 27.92 59.88 Centre 25 26.60 61 29.33 86 28.48 200 32.47 43.00 Lisbon 6 6.38 12 5.77 18 5.96 36 5.84 50.00 Alentejo 16 17.02 34 16.35 50 16.56 116 18.83 43.10 Algarve 6 6.38 11 5.29 17 5.63 32 5.19 53.13 Azores 9 9.57 10 4.81 19 6.29 38 6.17 50.00 Madeira 2 2.13 7 3.37 9 2.98 22 3.57 40.91 Total 94 100.00 208 100.00 302 100.00 616 100.00 49.03

a₆₁₆_individuals₌₃₀₈_{municipalities}_×₂_{decision-makers.}

Table2

Sizeofrespondentmunicipalities.

Sample Population n % N % Small 164 54.30 360 58.44 Medium 113 37.42 210 34.09 Large 25 8.28 46 7.47 Total 302 100.00 616 100.00

number of politicians and ﬁnancial ofﬁcials responding to the

surveyapproximates.

Finally,theweightoftherespondentsinthesamplecompared

tothepopulation,rangesfrom41%inMadeirato60%intheNorth,

soitmightbesaidthattherepresentationofeachregioninthe

sampledoesnotdivergeconsiderably.

Concerning the size of municipalities,5 _Table ₂ _shows _that

thisstudyhadgreatercollaborationfromrespondentsbelonging tosmallmunicipalities(54.30%),thepercentageofparticipation diminishingasthemunicipalities’sizeincreases.Giventhe conﬁg-urationofPortuguesemunicipalities,largemunicipalitiesareless representedinthesample,accountingforonly8.28%.Still,the dis-tributionofmunicipalitiesinthesample,accordingtotheirsize, approximatesthatofthepopulation.

67.5%ofthepopulation.Theglobalrateofresponse(49%)wasquitegoodandfor thiswascrucialtheprocessfollowedtoapplythequestionnaire,inordertoget asmuchanswersaspossible.Firstlyaletterwassentdirectlyaddressedtoall308 Mayors,presentingthesurveywithalinkwerethequestionnairecouldbefilled in,andasking,whenapplied,forhis/herdirectcollaborationinthesurveyor,as inmostcases,forauthorizationforotherrespondents(boththealdermanforthe financialareaandtherelevantfinancialofficial).Supportforthesurveywasalso gotfromtheNationalAssociationofPortugueseMunicipalities(ANMP)aswellas fromMedidata.net–SistemasdeInformaçãoparaasAutarquiasS.A.,acompanythat producesaccountingsoftwareformostmunicipalitiesinthenorthernPortugal.The formersentamemotoallassociates(addressingtheMayors)andthelatteran e-mail,appealingfortheircollaborationinthissurvey,highlightingtheimportanceof thestudytothePortuguesemunicipalities.Thissupport,namelyfromtheANMP, wascrucialtoincreasetheresponserate.

Asecondroundofcontactswasmadeabouttwomonthsaftertheﬁrstletter,bothvia e-mailandtelephone,withthosethatuptothenhadnotrepliedthequestionnaire, seekingforthereasonsofnon-replyandagainappealingforcollaboration. Meanwhile,othercontactsweremadereplyingtoclariﬁcationrequestsbythe respondents.

5 _For_the_analysis_by_size,_the_methodology_deﬁned_by_Carvalho,_Fernandes,

CamõesandJorge(2008)wasfollowed,whichcategorizesPortuguese municipali-tiesaccordingtothenumberofinhabitants:(1)smallmunicipalities–population nogreaterthan20000inhabitants;(2)medium-sizedmunicipalities–population over20000inhabitantsandnogreaterthan100000inhabitants;and(3)large municipalities–populationabove100000inhabitants.

As for the qualitative part of the study, semi-structured interviewsweremade, following a previouslyelaborated script containingthemainquestions,assuggestedbyYin(2009).Asinthe questionnaire,thescriptcoveredavariedsetofquestions.Those relevantforthepurposeofthis paperare:Inyouropinion,what aretheinternalorganizationalfactorsinfluencingthegreater/lesser usefulness/use of the financial information presented in the local authority’sfinancialreportingforyourdecision-making?Why?

Giventhefundamentalpurposeofthequalitativeanalysis– sup-plementingtheprimarydataobtainedinthequantitativeresearch –a theoreticalor purposefulsamplewasconsidered,according topre-establishedcriteria(Patton,2002;Strauss&Corbin,1990). Fromthebeginning,theselectionofthecasestookintoaccount thefactthataquestionnairehadbeenpreviouslyappliedandthe respondentshadrepliedcontrastinganswersregardingthe over-allusefulnessofﬁnancialreportingforinternaldecision-making– eitherveryusefulornotatalluseful.Additionally,the(contrasting) casestudieswerechoseninordertohaverepresentativenessfor differentsizesandgeographicallocations6_of_{municipalities.}

Thetheoreticalsamplewasalsoguidedbythesaturation prin-ciple,endingwheninformationfromadditionalcasesaddsnothing totheinitialbasis(Creswell,2009;Stake,1995).

Bearinginmindtheseprinciples,ﬁvelocalauthoritieswere cho-sentoformthecasestudies:twosituatedintheNorthernandthree intheCentralregionofPortugal.Asforsizeaccordingtonumber ofinhabitants,onelarge,twomedium-sizedandtwosmalllocal authoritieswereselected.

Contactwithlocalauthoritiesbelongingtodifferentregionsand varioussizeswasfoundveryimportanttoenhancecomparisonof thevariouscontextsinherenttotheentities,forexample,regarding theprocessofdecision-makingand/oractionintheareaofservice provisiontocitizens.

Creswell (2009), Eisenhardt (1989), and Quivy and Campenhoudt (2003) state that the position of interviewees shouldbeatthebasisoftheirselection,plusthefactofthembeing directlyinvolvedinactionorresponsibilities,besideshavinggood knowledgeofthesubject,beingabletoexplaintheiractionsand justifythem. Consideringthat thequalitative researchintended tocomplementthequantitativeone,itwasunderstoodthatthe interviewees should be the same as those who answered the questionnaire–politiciansandﬁnancialofﬁcials.

6_Following_the_Nomenclature_of_Territorial_Units_for_Statistical_Purposes_(NUTS),

levelII.NUTSIIcomprisessevenregions,ﬁveofwhichareinthemainlandPortugal (North,Centre,LisbonandTejoVale,AlentejoandAlgarve)andtwocorrespond totheAutonomousRegionsofMadeiraandAzores(Law-decreen.244/2002,5 November).

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Table3

Interviewsforthecasestudies.

Municipality Size Numberofinhabitantsa _Region _Interviewees

A Large 158124 North DeputyMayor

HeadofFinanceDepartment

B Small 15805 Centre Mayor

HeadofGeneralAdministrationDepartment

C Medium 56109 Centre Mayor

HeadofGeneralAdministrationDepartment

D Small 3518 Centre Mayor

TechnicalCoordinator–ManagementControlSub-unit

E Medium 23850 North CouncillorforFinancialMatters

HeadofDepartmentofAdministration,FinanceandModernization

a_Information_gathered_from_the_National_Institute_of_Statistics₍_www.ine.pt_),_Census_2011.

Forthecasesconsidered,10face-to-faceinterviewswere per-formed, taking place in the premises of the respective local authorities.Eachinterviewlasted1honaverage,although some-times longer, in order to take advantage of the interviewee’s interestandintheattempttoobtainmoreinformation.As recom-mendedbyseveralauthors(Ryanetal.,2002;Scapens,2004;Yin, 2009),theinterviewswererecordedandlatertranscribed.

Thereportingoftheinterviewsismadewithoutanyelementof identiﬁcationofthemunicipalityatstake,forreasonsofanonymity andconﬁdentiality.Therefore,inthecasestudies,allnameswere replacedbylettersAtoE,asinTable3.

Concerningthetechniqueofanalysingthedatafromthe inter-viewsperformedinthecasestudies,contentanalysiswasusedas itisaninstrumentcombiningavariedsetofmethodological tech-niques(Eisenhardt,1989;Stake,1995).Theworkwasnotlimitedto analysingtheindividualinterviews;itwasalsonecessarytocarry outasynthesisinordertoobtainasinglediscourseandsoinduce theanswerstowhatisintendedinthispartofthestudy.Tothis end,themethodfollowedtoanalyze,ingeneral,thecasestudies wasbasedsimultaneouslyonaverticalanalysis(synthesisofthe mainresearchquestionsofeachcasestudy)andonahorizontal analysis(comparativeanalysisofallcases,highlightingthemain differencesandsimilarities).Inthisstudy,onlytheresultsofthe horizontalanalysisarepresented.

Presentation,analysisanddiscussionoftheresults Quantitativeanalysis

Univariate analysis. In a first descriptive analysis of the data obtainedthroughthequestionnaire(Table4), thepressureof a nationalproblem(forexample,thecaseofbudgetconstraints)and thepressure ofcontrollingbodies (CourtofAudits,Inspectorate Generalof Finance, among others) were foundto bethe main factorsexternaltolocalauthoritiesthatpotentiallyinfluencethe usefulnessoftheinformationdisclosedinthefinancialreporting forinternaldecision-making. Controlbycitizensandmediaand publicopinionscrutinyaretheexternal factorsthat potentially haveleastinfluence,accordingtotherespondents(meanunder theintermediatevalueonthescale).

Financial officials consider that the political pressure has potentiallymoreinfluenceontheusefulnessofthefinancial infor-mationfordecision-making,comparedtothegroupofpoliticians (p<0.05).Thedifferencesarealsostatisticallysignificantbetween thedecision-makinggroups(p<0.1),inthecaseofthepotential influenceexertedbymediaandpublicopinionscrutiny.Itstands outthat,alsointhiscase,thehighermeanofpotentialinfluenceof thefactorontheusefulnessofthefinancialreportingisattributed bythegroupoffinancialofficials(2.85).

Interestingistonoticethatpoliticians, althoughmorelinked tonationalproblemsandcitizens’scrutinythroughthepolitical

commitmenttakenon,whileattributinggreaterpotentialinfluence tothosefactorsintheusefulnessofthefinancialreportingthan financialofficials,thedifferencesarefoundnottobestatistically significant.

Regardingthe degreeof influenceof localauthorities’ inter-nalfactors(Table5)ontheusefulnessofthefinancialreporting for internal decision-making, respondents consider excessive workloadandthelackofarticulationbetweentheaccounting infor-mationsystemandtheorganization’sobjectivesandmissiontobe thefactorswiththegreatestpotentialtoinfluencethatusefulness. Resistancetochangeandthelackofprofessionalexperienceinthe postorfunctionperformedarethefactorsconsideredwithleast potentialinfluence.

Itisofnotethat,inthesetoflocalauthorities’internalfactors, answersare,onaverage,veryclosetotheintermediatevalueinthe scale,beingmorescatteredforthecaseofexternalfactors.Inthe majorityoflocalauthorities’externalandinternalfactors,themean ofthedegreeofinfluenceontheusefulnessoffinancialinformation disclosedinthefinancialreporting,forinternaldecision-making,is overallhigherinthegroupoffinancialofficials.

In relation to organizational factors inside local authorities, excessive workload is theonly internal factor withstatistically signiﬁcantdifferences(p-value<0.1)betweengroupsof decision-makers.

Although not statistically significant, politicians, more than financialofficials,considerresistancetochangeashaving poten-tiallygreaterinfluenceontheusefulnessofthefinancialreporting fortheirdecision-making.Thisseemstoindicatethatpoliticiansare notasreceptivetochangesintheaccountinginformationsystem asfinancialofficials.Thissituationmightbejustifiedbythefact thatpoliticiansdonothaveanimmediateneedtoadapttonew systems,inasmuchastheyaregenerallysupportedbyspecialized personnel,preparingandprovidingthefinancialinformationthey require.

Multivariateanalysis. Theanalysiscontinuesidentifyingthefactors explainingtheusefulnessofthefinancialreportingfor decision-making by internal decision-makers (politicians and financial officials)usinganexplanatoryregressionmodel.Threevariables wereconsidered:“INTERNALFACTORS”and“EXTERNALFACTORS” (independentvariables),and“USEFULNESS”(dependentvariable). Independentvariables. Thevariables‘INTERNALFACTORS’and ‘EXTERNALFACTORS’wereconstructedonthebasisofthesimple averageofitemsaspartofeachfactorextractedfromthe facto-rialanalysisinprincipalcomponentsofthescale,assuggestedby

PestanaandGageiro (2008).Theresultsofthefactorialanalysis revealtheformationoftwofactorsthatexplain52.35%and60.75% of thetotal variance of the responses,respectively. The factors identiﬁedweredesignated‘EXTERNALFACTORS’and‘INTERNAL FACTORS’(independentvariables).TheresultsofCronbach’sAlpha

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Table4

Descriptivestatisticsofexternalfactors.

Pleaseindicatethedegreeofinﬂuenceofthe followingexternalfactorsontheusefulnessofthe ﬁnancialreportinginyourinternal

decision-making:

Variable Mean(n=302) Stand.dev. Min./max. %1/2a _%4/5a _{Decision-makers} _p-Valueb,c

Politicians Financialofﬁcials Mean(n=94) Mean(n=207) Pressureofanationalproblem(e.g.budget

constraints)

NatProbP 4.05 0.984 1/5 7.6 78.1 4.11 4.02 0.477

Pressurefromcontrollingbodies(Courtof Audits,InspectorateGeneralofFinance, amongothers)

ContBodP 3.88 1.109 1/5 11.9 68.5 3.81 3.91 0.469

Politicalpressure(localorcentral) PoliticP 3.28 1.214 1/5 25.2 45.4 3.07 3.38 0.043*

Pressurefromprofessionalorganizations (CNCAP,externalauditors,amongothers)

ProfOrgP 3.09 1.030 1/5 27.5 34.4 2.96 3.15 0.155

Citizens’control CitControl 2.92 1.047 1/5 33.1 30.1 2.97 2.90 0.597

Mediaandpublicopinionscrutiny ScPo 2.78 1.044 1/5 40.7 25.2 2.62 2.85 0.071***

a_Scale:_[1]_–_does_not_influence;_[5]_–_influences_greatly._Here,_“does_not_{influence”}_represents_the_percentage_of_respondents_who_indicated_[1]_or_[2]_in_the_scale_of

response;“inﬂuencesgreatly”representsrespondentswhoindicated[4]or[5].

b _p-Value_or_asym._{signiﬁcance}_of_the_Student’s_t-test.

c _When_*p-value_<_0.05,_**p-value_<_0.01,_***p-value_<_0.10,_groups_differ.

Table5

Descriptivestatisticsofinternalfactors.

Pleaseindicatethedegreeofinﬂuenceofthe followinginternalfactorsontheusefulnessofthe ﬁnancialreportingforyourinternal

decision-making:

Variable Mean(n=302) Stan.dev. Min./max. %1/2a _%4/5a _{Decision-makers} _p-Valueb,c

Political Financialofﬁcials Mean(n=94) Mean(n=208)

Excessiveworkload EWorkload 3.39 1.135 1/5 20.90 47.00 3.20 3.47 0.056***

Lackofarticulationbetweentheaccounting informationsystemandorganization’s objectivesandmission

LArt 3.31 1.098 1/5 22.50 46.00 3.28 3.33 0.687

Lackofknowledgeandsuitabletrainingonthe accountinginformationsystem(POCAL)

LKnowTr 3.18 1.204 1/5 29.10 42.10 3.05 3.24 0.223

Non-existenceofsufﬁcientcomputingmeans tobeabletousetheinformation appropriately

InexMeans 3.05 1.274 1/5 36.40 39.10 3.03 3.06 0.871

Complexityoftheﬁnancialinformation elaboratedinanaccrualbasis

ComplFinInf 3.02 1.160 1/5 30.80 35.80 2.91 3.06 0.307

Resistancetochange Resistanc 2.98 1.304 1/5 38.70 38.40 3.03 2.96 0.643

Lackofprofessionalexperienceinthe post/functioncurrentlyheld

LProfExp 2.86 1.229 1/5 41.10 32.10 2.76 2.90 0.332

a_Scale:_[1]_–_does_not_influence;_[5]_–_influences_greatly._Here,_“does_not_{influence”}_represents_the_percentage_of_respondents_who_indicated_[1]_or_[2]_in_the_scale_of

response;“inﬂuencesgreatly”representsrespondentswhoindicated[4]or[5].

b _p-Value_or_asym._{signiﬁcance}_of_the_Student’s_t-test.

c _When_*p-value_<_0.05,_**p-value_<_0.01,_***p-value_<_0.10,_groups_differ.

showeda goodinternalconsistency–Cronbach’sAlphaequalto 0.853for‘EXTERNALFACTORS’and0.900for‘INTERNALFACTORS’. Consideringthatthefactorialanalysisgeneratedonesinglefactor foreachvariable,allitemswithineachvariablewereincluded.

Dependentvariable. Thevariable‘USEFULNESS’isaglobal vari-ableformedfromfivefactorsarisingfromthefactoranalysis.The resultsofCronbach’sAlphashowedareasonableinternal consis-tency–Cronbach’sAlphaequalto0.755(Pestana&Gageiro,2008). Theperceptionoftherespondentsontheusefulnessof munici-palfinancialreportingforinternaldecision-makingindicatesthat itisquiteuseful,withanaverageof4.12.Thus, forthevariable ‘usefulnessofmunicipalfinancialreporting’,resultsoftheKMO test(equalto0.911)indicatethatthequalityofthecorrelations betweenvariablesisverygood(Marôco,2010;Pestana&Gageiro, 2008).Furthermore,resultsof Bartlett’stest (p<0.05, ˛=0.000) demonstratethatthereisapositivecorrelationbetweenthe vari-ables(2₍₃₅₁₎₌_80.077.504).

Toanalyzetherelationshipbetweenvariables,non-parametric statistic was used, namely, by calculating Spearman’s (rho) coefﬁcients.

Results show that the ‘EXTERNAL FACTORS’ are mutually related, in this way conﬁrmingthe resultsof the factor analy-sis.The correlationcoefﬁcients withthe‘USEFULNESS’ variable showthatexternalfactorsarepositivelycorrelated,althoughthe

resultsshowweakcorrelations(rho(302)variesbetween0.099and 0.249).

Regarding the independent variable, ‘INTERNAL FACTORS’, resultsshowtheexistenceofamoderatetostrongcorrelation,fora levelofsignificanceof0.01,alsoconfirmingtheresultsobtainedin thefactorialanalysis.Thecorrelationcoefficientswiththe ‘USEFUL-NESS’variableshow,unexpectedlyandcontrarilytotheliterature, thatinternalfactorsarepositivelycorrelated,althoughtheresults showveryweakcorrelations(thecorrelationcoefficientrho(302) variesbetween0.129and0.249).

Regressionanalysis. Toanalyzethefactorsexplainingthe use-fulnessofthefinancialreportingfordecision-makingbyinternal decision-makers(politiciansandfinancialofficials),aregressionof explanatoryvariablesisproposed(totestH1andH2).Giventhat thedependentvariableiscensoredandtruncated,withthevalue oscillatingbetween1and 5,theadequatetechniqueconsistsof estimatingaTobitmodel7₍_Tobin,₁₉₅₈_),_such_as:

y∗_i =ˇ·xi+εi

7_The_use_of_the_OLS_technique_is_not_adequate,_as_demonstrated_by_Chou_and

Cebula(1996)andGreene(2002),sinceitwouldobtaininconsistentestimators. Addstothelowandhighlimitsofthedependentvariable,thefactthatitisdiscrete.

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Table6

Regressionestimates.

Independentvariables Dependentvariable

Usefulness ˇ Std.err. t p-Value (Constant) 3.417 0.154 22.16 0.000 PoliticP −0.032 0.034 −0.93 0.356 NatProbP 0.072 0.038 1.89 0.060*** ProfOrgP 0.104 0.041 2.49 0.013* ContBodP −0.008 0.041 −0.20 0.844 ScPo −0.039 0.044 −0.89 0.375 CitControl 0.018 0.039 0.46 0.647 LKnowTr 0.087 0.040 2.16 0.031* LProfExp 0.014 0.041 0.35 0.730 ComplFinInf −0.025 0.040 −0.62 0.535 Resistance 0.028 0.037 0.79 0.433 LArt −0.033 0.045 −0.73 0,464 EWorkload 0.010 0.032 0.30 0.765 InexMeans 0.008 0.032 0.26 0.795 0.514 0.021 Numberofobs. 302 LR2₍₁₃₎ _35.96 Prob>2 _0.0006 PseudoR2 _0.0725 Tobitmodel.

*_Significant_for_a_level_of_{significance}_of_0.05. ***_Significant_for_a_level_of_{significance}_of_0.10.

where yi∗ isthe dependentvariableto beestimated (‘USEFUL-NESS’);ˇisak-dimensionalvectorofunknownparameters;xiisa vectorthatcontainsallexplanatoryvariablesof‘INTERNAL FAC-TORS’and‘EXTERNAL FACTORS’(independentvariables); andεi representstheresidualerrors.

Thevariableyi,whichreferstotheobservedusefulnessscores, isthusdeﬁnedasfollows:

yi=y∗i; y∗i <yci yi=yc_i; y∗_i ≥yc_i

yc_i representsthevalueofcensorshipand,asthepurposesofthis research,itsvalueistheminimumandmaximumscoresthatthe variable‘USEFULNESS’canobtain(1–5points).

ThestandardTobitmodelassumeshomoscedasticityand nor-malityintheresidualdistribution,obtainingconsistentestimators whenbothassumptionsaremet.

H1 and H2 were then testedestimating the following Tobit regressionmodel:

USEFULNESS=ˇ₀+(ˇ₁PoliticP+ˇ₂NatProbP+ˇ₃ProfOrg +ˇ₄ContBodP+ˇ₅ScPo+ˇ₆CitControl) −(ˇ₇LKnowTr+ˇ₈LProfExp+ˇ₉CpmplFinInf +ˇ₁₀ Resistanc+ˇ₁₁LArt+ˇ₁₂ EWorkload

+ˇ₁₃ InexMeans+εi (1) where‘USEFULNESS’representsthedependentvariable;andthe variables PoliticP, NatProbP, ProfOrgP, ContBodP, ScPo, CitControl (representingthevariablesof‘EXTERNALFACTORS’),andLKnowTr, LProfExp,ComplFinInf,Resistanc,LArt,EWorkload,InexMeans (rep-resenting the variables of ‘INTERNAL FACTORS’), represent the independentvariablesexplainingtheusefulnessoftheﬁnancial reportfor internal decision-making;and εi representsthe esti-matederrors.

Table6displaysthestatisticsfromtheestimation.

Theresultsshowthatthedependentorexplainedvariableis onlysignificantlyinfluencedbythreevariables.Thesefindingswere somehowexpectedgiventheweakcorrelationsobtainedbetween thevariablesintheabove-performedanalysis.Themodelestimated

presentsadeterminationcoefficientof0.0725(PseudoR2_),_which meanstheindependentvariablesanalyzed(factors)explainonly about7.25%ofthevariationobservedintheusefulnessvariable,so themodelestimatedmightbesaidasnotsorobust(Marôco,2010). Nevertheless,the2_statistic_with_a_value_of_35.96_associated witha p-valueequal to0.0006(˛=0.05)allowsconcludingthat themodelisstatisticallysignificant,i.e.,itissuitable toexplain therelationshipbetweentheusefulnessofthefinancialreporting forinternaldecision-makingbylocalauthorities’decision-makers, andsomeexternalandinternalorganizationalfactors.The useful-nessofthefinancialreportingispositivelyinfluencedonlybythe pressurefromprofessionalorganizations(ProfOrgP)andthe pres-sureofanationalproblem(NatProbP),bothexternalfactors,and bythelackofknowledgeandsuitabletrainingontheaccounting informationsystem–POCAL(LKnowTr),anorganizationalfactor internaltothelocalauthority.Therefore,theregressioncoefficients arestatisticallysignificantonlyforthevariablesProfOrgP(˛=0.05) and NatProbP (˛=0.1), both external factors, and for LKnowTr (˛=0.05;internalfactor).Fromthesefindings,thefollowing regres-sionmodelisestablished:

USEFULNESS=3.417+0.072NatProbP+0.104ProfOrgP

+0.087LKnowTr+εi (2)

Reﬂectingontheresultsoftheregressionmodel,onecan con-clude that H1 isonly partially corroborated,and H2 cannot be corroborated.

Ineffect,theusefulnessconsideredtofinancialinformationin supportinginternaldecision-makinginPortugueselocal authori-tiesispositivelyaffectedonlybytwooutofthesixexternalfactors considered(ProfOrgPandNatProbP).Astointernalfactors,financial reportingusefulnessisaffectedonlybyoneoutofthesevenfactors considered(LKnowTr);inaddition,thepositivesignofthiseffect wasoppositetowhatwasinitiallyexpected.Thismeansthat,in thecaseofPortugueselocalauthorities,thelackofknowledgeand suitabletraining ontheaccountinginformationsystem(POCAL) seemstohavearatherunexpectedpositiveeffectonthe useful-nessofthefinancialreportingforinternaldecision-making.Inother words,thisfindingsuggeststhatinternaldecision-makersinlocal authorities, whohave lessknowledge anddo not havesuitable trainingontheaccountinginformationsystem(regardlesswhether theyarepoliticiansorfinancialofficials),useandattributegreater usefulnesstothefinancialinformationdisclosedinthefinancial reporting.Consideringthatthecorrelationsbetweenthevariables ‘USEFULNESS’offinancialreportingandlocalauthorities’internal organizationalfactorswereweak,furtherresearchwasneededto clarifythisfinding,whichonetriedtocomplementinthe qualita-tivepartofthisstudy.

Takingthoseweakcorrelationsintoconsideration,these find-ingsseemtomeanthattherespondents/decision-makers(either politiciansorfinancialofficials)donotconsidermostofthe inter-nal organizational factors analyzed as possibleof affecting the usefulnesstheygivetofinancialinformationfordecision-internal making.Thiswasanothermatterrequiringfurtherdiscussionon thequalitativeanalysis.

Finally,mostfactorswerefoundasstatisticallynon-signiﬁcant intheregressionmodel,asinthecaseoftheexcessiveworkload whileprocessingtheinformation;thesewereunexpectedresults giventhatinthedescriptive/univariateanalysisthisfactorhadbeen rankedashavinghighinﬂuenceoninternaldecision-making.

Overall, these resultsseem to indicate that the adoption of private sector accounting practices in the Local Government accounting system(whichresulted inthepreparation and pre-sentationofnewaccrual-basedinformationfordecision-making) occurredasaresponsetoinstitutionalpressuresexertedonlocal

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Table7

Resultsofinterviews–internalfactorsinﬂuenceonusefulnessofﬁnancialinformation.

Factor Cases Inﬂuence

Politicians Financialofﬁcials

Excessiveworkload A/B/C/D/E Negative(A,B,C,E) Negative(B,C,D)

Sizeofthelocalauthoritya _A/D _Positive_(A) _Negative_(D)

Non-existence/scarcityoftechnologicalresources A/B/C/D/E Negative(A,D) Negative(B,C,E) Complexityoftheﬁnancialinformationelaboratedinan

accrualbasis

B/D Negative(B,D) Negative(D)

Lackofarticulationbetweentheaccountinginformation systemandtheorganization’sobjectivesandmission

B/C/E Negative(B) Negative(C,E)

Localauthorityservingasreferenceforotherexternal organizations(e.g.localbusinesscompaniesandother municipalitieswithinanetworkoflocalservices provision)a

A Positive(A) –

Cleardeﬁnitionoffunctionsandallocationof responsibilitiesa

A Positive(A) –

Resistancetochange D/E Negative(D) Negative(E)

Lackofprofessionalexperienceinthepost/function D/E Negative(D,E) Negative(E)

Lackofknowledgeandsuitabletrainingontheaccounting informationsystem(POCAL)

A/B/C/D Negative(A,B,C,D) Negative(C,D)

a_New_factor_added_compared_to_the_quantitative_analysis_(see_Table₅_).

entities.Professionals, but alsofiscal constraintsrequiring con-stantmonitoringofthedecisionsoutputs,seemindeedtopressure positively for the usefulness of financial reporting for internal decision-making.Therefore,theinstitutionaltheoryseemsindeed tohave a significant role in explaining theaccounting reforms adoptedinthepublicsector,specificallyinLocalAdministration inPortugal,whichultimatelyhavehadpositiveimpactinthe use-fulnessofthefinancialinformationforinternaldecision-making.

Ifontheonehand,fromtheoutputsoftheunivariate analy-sis,itseemsthatbothexternalandinternalorganizationalfactors haveapotentialinﬂuenceonuseandusefulnessofthe informa-tiondisclosedinthelocalauthorityﬁnancialreportingforinternal decision-making,ontheotherhand,theresultsoftheregression modelshowthatthefactorsconsideredgenerallyexplainavery lowpercentageofthevariationobserved.Nevertheless, consider-ingtheresultsofthevariablescorrelations,suchconclusionsdonot comeasasurprise.

Onlythreefactors–pressurefromprofessionalorganizations, pressure from a national problem (both external factors) and thelack of knowledge and suitable training onthe accounting informationsystem(internalorganizationalfactor)–show statis-ticalsignificance,albeitweak,inexplainingusefulnessoffinancial reportingforinternaldecision-making,allowingonlypartial sup-portforthehypothesesformulated.Still,thesefindingsseemtobe somehowconvergentwithothersintheliterature,e.g. corroborat-ingtheconclusionsinthestudiesbyAskim(2008),Cohen(2009),

Cohenetal.(2007),GrossiandReichard(2009),Guthrie(1998), andPallot(1997).Toacertainextent,thereissomeevidencethat findssupportinsomeassumptionsofcontingencyandinstitutional theoriesabouttherelationshipsbetweenaspectsoftheinternal andexternalcontextsofapublicsectororganizationandits man-agementcapacity,specificallyintheusefulnessoftheinformation presentedinthefinancialreportingtosupporttheprocessof inter-naldecision-makinginlocalauthorities.

Qualitativeanalysis

Inthelightoftheinstitutionaltheory,thequalitativeanalysis sought,ingeneral,toreinforcetheidentificationofinternal organi-zationalfactorsthatcaninfluencegreaterorlesserusefulness/use ofthefinancialinformationinthelocalauthorities’financial repor-tinginsupportinternaldecision-making,withaviewtoextending theresultsobtainedwiththequestionnaires. Thisanalysisalso aimedtoattempttoestablishacloserrelationshipwithsome theo-reticalexplanationsforreformsinpublicsectoraccounting,namely forthechangesinordertoelaboratemoreusefulinformationfor

accountabilityanddecision-making.Thecomplementarityofthe informationgatheredalsoallowedcoveringthenon-responsesto thesurvey.

Asinthequantitativeanalysis,inthequalitativeonethe inten-tionwastocomparetheperspectivesofpoliticiansandﬁnancial ofﬁcialsasdecision-makers,bylocalauthority.

Ingeneral,theresultsoftheinterviewsregardinginternal orga-nizationalfactorsconfirmedtheresultsdescribedintheunivariate analysis, but new factorspossibly influencing greater or lesser usefulnessofthemunicipalfinancialreportinginsupportingthe decisionprocesswerealsoidentified.Table7showstheinternal factorshighlightedbytheinterviewees,thecasesinwhichthey werereferredtoandthesignalforeachfactorofinfluence, distin-guishedbypoliticiansandfinancialofficialsasdecision-makers.

Asalreadystated,thesefindingsforinternalorganizational fac-torsand theirinfluenceontheusefulnessoffinancialreporting fordecision-making,allowanoverallconfirmationofthoseofthe univariateanalysisofdatagatheredfromthequestionnaire.They alsovalidatethenegativesignalexpectedfortheinfluenceofthese factors,evenforthe‘Lackofknowledgeandsuitabletrainingon theaccountinginformationsystem(POCAL)’,whichhadfounda positiveinexplicableinfluenceintheregressionanalysis.

It shouldberememberedthat this factor appearsin the lit-erature with a negative sign and that in above testing of H2

the opposite result was obtained, raising the need for further clarification in the interviews. For this factor, all interviewees sharedanopinioncoherentwiththeinternationalliterature,hence contradictingthestatisticalanalysisandsuggestingthatinternal decision-makerswitha lackofknowledgeandsuitable training ontheaccountinginformationsystem(POCAL)makelessuseof thefinancialinformationtosupportdecision-makinginPortuguese localauthorities,regardlesswhethertheyarepoliticiansor finan-cialofficials.

Thefactor‘Excessiveworkload’continuestobethepotentially mostinﬂuencingone.

Therefore,whileﬁndingsinthequantitativeanalysisdidnot allowtocorroborateH2,thequalitativeanalysisreassuresthatthis hypothesismightbeaccepted.

Furthermore, the information gathered at the quantitative stage was complemented, by identifying new internal factors suchas: the size of the localauthority; the fact that thelocal authorityservesasreferencefor otherexternalorganizationsin terms of efficient, effective and economic management of the resources,increasesitsfinancialinformationneeds,soincreasing financialinformationusefulnessfordecision-making;andtheclear

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definitionoffunctionsandallocationofresponsibilities.Whilethe twolatterinternalfactorswereidentifiedonlybyapolitician(ina largemunicipalityintheNorthregion)aspositivelyaffectingthe usefulnessoffinancialreportingforinternaldecision-making,the former(sizeofthelocalauthority)wasidentifiedbyapoliticianin alargemunicipalityashavingapositiveinfluenceandbya finan-cialofficialinasmallmunicipalityashavingnegativeinfluence. Consequently,there is aslight indicationthatsize mightbean issuewhenconsideringtheusefulnessoffinancialreportingfor internaldecision-makinginmunicipalities.Thisisamatterthat deservesattentioninthefutureofthisresearch.

Theinterviewsingeneralalsoindicatethatpolitical decision-makers are those who appear to be less receptive to changes resultingfromthereformofLocalGovernmentaccountingin Por-tugal.

Conclusionsandpolicyimplications

The literature indicates that the usefulness of the financial information presented in thefinancial reportingof public bod-iesdependsonvariousfactorsintheorganizational(internaland external)context.Theseconclusionsweresomehowcorroborated inthisstudyinthecontextoflocalauthorities.Theempiricalresults forPortuguesemunicipalitiesshowthatpressurefromprofessional organizationsaswellasthepressureofanationalproblem(both externalfactorswithpositive influence)and thelackof knowl-edgeandsuitabletrainingontheaccountinginformationsystem –POCAL(internalorganizationalfactorwithnegativeinfluence) arefactorswithgreat influenceontheusefulnessofthe munic-ipalfinancialreportingfordecision-makingbythemaininternal decision-makers–politiciansand financialofficials. These find-ingsarevalidatedinthecomplementaryqualitativeanalysis,which additionallystrengthensthe‘excessiveworkload’factoras possi-bleofhinderingtheusefulnessoffinancialreportingforinternal decision-making.Althoughthisfactorhasnotobtaineda signifi-cantvalueinthehypothesistestedfromthequestionnairedata, itisnotedthat theresultsofthedescriptive (univariate) analy-sisofthequantitativepartofthestudyseemedtopointtoitas beingsomehowimportantindeterminingtheusefulnessfor inter-naldecision-makingoflocalauthorities’financialinformationin Portugal(respondents/decision-makersgavethehighestaverage punctuation).

Ingeneral,theseconclusionsﬁndsupportinthecontingency theory,andespeciallyintheinstitutionaltheory,whichsustainthat externalpressuresandorganizationalfactorsdeterminechanges inpublicsectoraccountingsystems,henceaffectingthewaythe ﬁnancialinformationtheyproduceisusedforinternal decision-making.

Overall,onemaysaythat theresultsshowedtheusefulness of the ﬁnancial reporting for internal decision-making in Por-tugueselocalauthoritiesderivesfromexternalpressures.Anew systemforpublicsectoraccountinginPortugal,includingforLocal Government,iscurrentlyunderdevelopment,8 _implying_a_more

sophisticatedaccountingandreportingsystem,closerto interna-tionalstandards(IPSAS).Accordingtothediscussioninthispaper, thefuture(asthecurrent)regulationandstandardsonthe sub-ject,aswellastheusefulnessacknowledgedtosuchinformation forinternaldecision-makingpurposesinpublicsectorentities,will derive fromcoercive and normative isomorphism(institutional theory).Itwillresult,respectively,ontheonehand,fromexternal pressures(e.g.lenderssuchastheECBandtheIMF)totheadoption ofnewaccountingpracticesbypublicsectorbodies,includinglocal

8_The _development _of _the _new _accounting _system _– _SNC-AP _(Accounting

authorities,and,ontheotherhand,frompressuresofprofessionals pushinganapproximationofthepublicsectoraccountingintothe businessaccountingsystem.

Consequently,similarlytowhathashappenedinthebusiness sector,onecanexpectthatalsoforPublicAdministration,thenew modeloffinancialreportingtobeadopted,adaptedfromtheIPSAS, willontheonehandbemoreflexibleintheinformationtoreport, andontheother,morerigorousandtransparentinpresentingthe informationtoitsusers.Themainaimofadoptinganewmodelof financialreporting,throughexternalpressures,willthereforelead toincreasingitsusefulness.However,itisquestionablewhetherthe usefulnessintendedwillbetrulyrecognizedbyitsusers,namely tosupportinternaldecision-making.Willdecision-makerscome tousetheinformationavailableinthenewfinancialreportingin theirdecision-makingforbetterfinancialmanagementofpublic resourcesorwilltheyfinditjustauselessworkoverload?Another questionarisingconcerns, forexample,theknowledge ofthose who willusethenewfinancialreportinternally– willtheybe readyforitandhavetheappropriateknowledge?Thisseemsto beacriticalissuehighlightedinthestudyaspossibletohinderthe use/usefulnessattributedtosuchinformation.

Allinall,thisstudyallowsderivingthefollowingimplications: -Pressures from professional organizations (e.g. the certified accountantsinstitute)andanationalfiscalproblemareofmajor importancewhenconsideringtheusefulnessoffinancial repor-tingforinternaldecision-making,especiallyinlocalauthorities, meaningthatprofessionalbodiesandthefinancialconjuncture seem to stimulate informational needs by internal decision-makersinpublicsectorentities.

-Thelackofknowledgeandsuitabletrainingontheaccounting informationsystembydecision-makers,especiallybylocal politi-cians,isahinderingfactoroftheusefulnessgiventoﬁnancial reportingforinternaldecision-making,whichallowsconcluding that the background, and possibly the training, of decision-makersontheaccounting andﬁnancial reportingsystemwill increaseitsusefulnessassubsequentlythequalityofthe deci-sionstaken.

Countries and internationalstandard-setters (e.g. IPSASBfor IPSAS,EurostatforEPSAS),whilereformingpublicsector account-ing,mustconsidertheseissues,iftheywishaccountingtobean informationsystemtotrulysupportdecision-making.

Conﬂictofinterest

Theauthorsdeclarethattherearenoconﬂictsofinterest.

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