Measuring Financial Strength in the Public Sector: The Case of Greek Municipalities

An important research field in public and private sectors, accounting is the identification of the factors of financial strength that affect the control and decision-making process. The paper examines the financial strength of the municipalities in Greece and their possible bankruptcy. In literature, important examples of forecasting and estimating financial strength for public sector have been presented, such as the Brown’s 10-point test which measures the financial condition in the case of municipalities. The present survey focuses on the liquidity of the Greek municipalities using data for the financial year 2014 from all over the Greek territory. By implementing Brown’s 10-point test for Greek municipalities and using quantitative methods, each point is becoming a separate independent variable which affects, with different estimator, the total score of financial condition. The model that has been developed appears to be effective in the case of Greek municipalities by providing a rating for their financial strength. The use of the proposed methodology can be used by both funding institutions (banks, grant providers, relevant ministry) on a programmatic basis to address liquidity problems.

Altman, E. I. (1968). Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. The Journal of Finance, 23(4), 589-609.

Altman, E. I. (2000). Predicting financial distress of companies: Revisiting the Z-score and ZETA models. Stern School of Business, New York University.

Bennett, J., & Ormerod, R. N. (1984). Simulation applied to construction projects. Construction Management and Economics, 2, 225-263.

Berne, R., & Schramm, R. (1986). The financial analysis of governments. Prentice-Hall.

Brown, K. W. (1993). The 10-point test of financial condition: Toward an easy-to-use assessment tool for smaller cities. Government Finance Review, 9, 21-26.

Brown, K. W. (1996). Trends in key ratios using the GFOA financial indicators databases 1989-1993. Government Finance Review, 12, 30-34.

Carmeli, A. (2002). A conceptual and practical framework of measuring performance of local authorities in financial terms: Analysing the case of Israel. Local Government Studies, 28(1), 21-36.

CICA. (1997). Indicators of government financial condition. Canadian Institute of Chartered Accountants, Toronto.

Cohen, S. (2008). Identifying the moderator factors of financial performance in Greek municipalities. Financial Accountability & Management, 24(3), August, 0267-4424.

Fisher, M., Marsh, T., & Bunn, E. (2015). Fiscal health analysis of Texas and its municipalities. Journal of Business & Economics Research, 13(2), 115-122.

Groves, S. M., Godsey, W. M., & Shulman, M. A. (1981). Financial indicators for local government. Public Budgeting & Finance, 1(2), 5-19.

Hendrick, R. (2004). Assessing and measuring the fiscal health of local government: Focus on Chicago suburban municipalities. Urban Affairs Review, 40(1), 78-114.

Hertz, D. B. (1964). Risk analysis in capital investment. Harvard Business Review, 42, 95-106. Reprinted in Harvard Business Review, September/October 1979, pp. 169-182.

Jones, S., & Walker, R. (2007). Explanators of local government distress. Abacus, 43(3), 396-418.

Kloha, P., Weissert, C. S., & Kleine, R. (2005). Developing and testing a composite model to predict local fiscal distress. Public Administration Review, 65(3), 313-323.

Loizou, P., & French, N. (2012). Risk and uncertainty in development: A critical evaluation of using the Monte Carlo simulation method as a decision tool in real estate development projects. Journal of Property Investment & Finance, 30(2), 198-210.

 

Lorance, R. B., & Robert, V. W. (1999). Basic techniques for analysing and presentation of cost risk analysis. AACE International Transactions, Association for the Advancement of Cost Engineering.

Nollenberger, K., Groves, S. M., & Valente, M. G. (2003). Evaluating financial condition: A handbook for local government. Washington, DC, International City/County Managers Association.

Rivenbark, W. C., & Roenigk, D. J. (2011). Implementation of financial condition analysis in local government. Public Administration Quarterly, 35(2), 241-267.

Ritonga, I., Clark, C., & Wickremasinghe, G. (2012). Assessing financial condition of local government in Indonesia: An exploration. Public and Municipal Finance, 1(2), 37-50.

Wang, X., Dennis, L., & Tu, Y. S. J. (2007). Measuring financial condition: A study of US states. Public Budgeting & Finance, 27(2), 1-21.