The effect of debt intensity on the asymmetric cost behavior: empirical evidence from local governments

Sotirios Karatzimas, Vasilios Christos Naoum and Paschalis Seretis

Journal of Public Budgeting, Accounting & Financial Management, 2024, vol. 36, issue 4, 514-535

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 Andersonet 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.

Keywords: Cost behavior; Cost stickiness; Debt; Local government; Municipalities; Sticky cost theory (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:jpbafm:jpbafm-12-2023-0228

DOI: 10.1108/JPBAFM-12-2023-0228

Access Statistics for this article

Journal of Public Budgeting, Accounting & Financial Management is currently edited by Dr Giuseppe Grossi

More articles in Journal of Public Budgeting, Accounting & Financial Management from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().