d Department of Accounting, College of Commerce and Economics, Sultan Qaboos University,

examines the voluntary Internet nancial reporting practices of local authorities. Six

variables associated with voluntary disclosure are examined: political competition, size,

* Corresponding author. Tel.: +64 6 356 9099; fax: +64 6 350 5658.

E-mail address: f.laswad@massey.ac.nz (F. Laswad).

Journal of Accounting and Public Policy 24 (2005) 101121

www.elsevier.com/locate/jaccpubpolP.O. Box 20, AL Khod PC 123, Oman

Abstract

The reform of public sector (local and central government) nancial reporting in

New Zealand in the early 1990s has aligned such reporting with reporting practices in

the private sector (business enterprises). Literature examining the behaviour of manag-

ers in the public (government) sector suggests that agency relationships in the sector

motivate such managers to provide information to enable the monitoring of their

actions. This literature identies a number of characteristics and variables that proxy

for agency costs in the public sector. The recent development of the Internet provides

an opportunity for examining voluntary disclosure in the public sector and, in particu-

lar, in the local government environment. Some New Zealand local government author-

ities elect to voluntarily provide nancial information on their websites. This paperDeterminants of voluntary Internetnancial reporting by localgovernment authorities

Fawzi Laswad a,*, Richard Fisher b, Peter Oyelere c,d

a School of Accountancy, Massey University, Private Bag 11 222, Palmerston North, New Zealandb Department of Accountancy, Finance, and Information Systems, University of Canterbury,

Private Bag 4800, Christ church, New Zealandc Centre of Accounting Education and Research, Lincoln University, New Zealand0278-4254/$ - see front matter 2005 Elsevier Inc. All rights reserved.doi:10.1016/j.jaccpubpol.2004.12.006

leverage, municipal wealth, press visibility, and type of local authority. Results indicate

that leverage, municipal wealth, press visibility, and type of council are associated with

the Internet nancial reporting practices of local authorities in New Zealand. Policy

implications and possible limitations of the study as well as suggestions for future

research are discussed in the paper.

2005 Elsevier Inc. All rights reserved.

Keywords: Internet nancial reporting; Local governments; Voluntary disclosure; New Zealand

1. Introduction

1 The Public Finance Act 1989 requires that the Crown, Crown entities and agencies, and

102 F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101121departments prepare their accounts in accordance with generally accepted accounting practice. An

amendment to the Local Government Act 1974, in 1989, also requires that audited nancial

statements of local authorities be prepared in accordance with generally accepted accounting

practice.2 The annual report provides historical nancial information while the annual plan provides

forward-looking nancial information.3 The Act does not specify the medium for the dissemination of nancial information. It requires

only that local authorities send copies of their annual reports and plans to the secretary of local

government, the auditor general, and the parliamentary library. Local authorities are also required

to make their annual reports and plans available for public inspection in their oces and librariesThis paper examines the characteristics of local government (authorities)

that inuence the voluntary dissemination of nancial information on the

Internet. Such examination enhances the understanding of incentives to use

the Internet as a medium for discretionary disclosure in the public sector.

Following reforms in the early 1990s, nancial reporting by public sector

entities in New Zealand was aligned with private sector nancial reporting.

Public sector entities prepare their nancial statements in accordance with

the same set of nancial reporting standards that apply to private sector enti-ties.1 The Local Government Act 1974 (sections 223D and 223E) requires local

authorities to prepare two nancial reports, an annual report, and an annual

plan.2 Some local authorities voluntarily elect to use the Internet to publish

nancial information.3

A number of studies examine the determinants of discretionary nancial

reporting on the Internet by business enterprises (e.g., Ashbaugh et al., 1999;

Craven and Marston, 1999; Pirchegger and Wagenhofer, 1999; Oyelere et al.,

2003). These studies primarily focus on managerial incentives in the private sec-tor. The determinants of such discretionary disclosure in the public sector have

not been examined.and to make copies of such reports available to the public either free of charge or at a reasonable

charge.

and the political manager is the agent (Banker and Patton, 1987). In this sce-

nario, politicians are assumed to be self-interested, maximising agents, wherebythe maximisation of their wealth depends on their re-election, advancement,

and current and future income, both pecuniary and non-pecuniary (Zimmer-man, 1977). Voters are also assumed to be self-interested and to act in such

a way as to increase their wealth. Voters wealth is related to the actions of theiragents. Accordingly, each voter has an incentive to monitor the behaviour of

politicians (Zimmerman, 1977). Further, voters may align themselves with

interest groups, which have greater power to aect the outcome of elections

than individual voters (Baber, 1983).

Similar to other agency relationships, the interest group (the principal) and

the politician (the agent in the public sector) share certain benets and also cer-tain costs. Therefore, elected politicians supply monitoring information to

show that they are honouring pre-election promises, and their incentives to

do so increase as political competition increases (Baber, 1983).To investigate why managers of local authorities elect to provide nancial

information on the Internet, this study compares the characteristics of local

authorities that use the Internet as a disclosure medium with those that choose

not to use such a medium. The results indicate that leverage, municipal wealth,

press visibility, and council type are the primary determinants in the decision to

report nancial information on the Internet.The paper is structured as follows: The following section reviews the litera-

ture on determinants of nancial reporting practices in the public sector. Sec-

tion 3 discusses the characteristics and obligations of local authorities in New

Zealand. Section 4 presents the research hypotheses, while Section 5 discusses

the research design. Data analysis, and results and discussion are provided in

Sections 6 and 7 respectively. The last section presents the summary and

conclusion.

2. Literature review

The literature examining voluntary disclosure in the government sector is

largely based on the application of agency theory in that sector. The following

is a review of literature on agency relationships and determinants of voluntary

disclosure in the public sector.

2.1. Agency relationships and the incentives for disclosure in the public sector

The relationship between the political (public sector) manager and the voter

can be described as an agency relationship whereby the voter is the principal

F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101121 103The discussion above indicates that agency relationships in the public

sector provide incentives to public sector managers to voluntarily disclose

information that allows the monitoring of their actions. A number of studies

examine the voluntary disclosure of managers in the public sector. These

studies are reviewed in the following section.

2.2. Incentives for voluntary disclosure in the public sector

Relative to the private sector, studies examining voluntary disclosure prac-

tices in the public sector are limited. The following is a brief review of the var-

ious disclosure incentives examined in the literature.

Baber (1983) argues that the higher the political competition, the higher the

incentive for the political manager to supply monitoring information to the

principals. Several studies have empirically tested this relationship (e.g., In-

gram, 1984; Baber, 1983; Baber and Sen, 1984; Evans and Patton, 1987; Gir-

oux, 1989). Most of these show a positive relationship between politicalcompetition and disclosure.

Several studies have also examined the relationship between the form of

local government and monitoring incentives (e.g., Zimmerman, 1977; Evans

and Patton, 1987; Ingram and DeJong, 1987; Giroux, 1989). Generally, these

studies reveal a signicant relationship between the form of local government

and disclosure choice.

A number of studies examine the association between size and monitoring

behaviour (e.g., Evans and Patton, 1987; Ingram and DeJong, 1987; Ingram,1984; Baber, 1983; and Christiaens, 1999) but provide inconclusive evidence.

Ingram (1984) and Evans and Patton (1987) report no statistical association

while Baber (1983), Ingram and DeJong (1987), and Christiaens (1999), show

a signicant relationship between size and monitoring behaviour.

Zimmerman (1977) argues that politicians have incentives to reduce the cost

of debt, thus increasing the resources available for other programs that may

increase the politicians welfare. Such incentives motivate public sector man-agers to provide information for the monitoring of their actions. The resultsof studies that examine the association between debt and disclosure in the pub-

lic sector are mixed. For example, Ingram and DeJong (1987) and Evans and

Patton (1987) report a signicant relationship between debt and disclosure,

while Baber (1983), Baber and Sen (1984) and Christiaens (1999) nd that debt

is not associated with disclosure. Gore (2004) believes that a failure to ade-

quately control for dierences in regulatory environments (e.g., dierences in

state-specic regulations) and, in some cases, focusing only on larger municipal

authorities, may explain some of the inconsistencies in prior studies. After con-trolling for these factors, Gore (2004) found, in the unregulated state, a positive

association between disclosure levels and proxies for bond market interaction.

Zimmerman (1977) also notes that the press and public media inuence the

104 F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101121agency relationship between voters and politicians. He points out that the

uncovering of political graft and scandals sells newspaper, attracts television

forms, regional councils and territorial authorities. Territorial authorities are

either district or city councils. Regional councils are responsible for resourcemanagement, bio-security, catchment control, harbour administration, regio-

nal civil defence, and regional land transport. City and district councils are

responsible for community well-being and development, environmental health

and safety (including building control, civil defence, and environmental health

matters), infrastructure (roads and transport, sewerage, water/stormwater),

recreation and culture, and resource management including land use planningand development control.

Eligible voters are entitled to vote for councillors and, in the case of territo-

rial authorities, a mayor. The council appoints a chief executive ocer (CEO)

to whom heads of departments within the council are responsible. Under the

Local Government Act 1974, the CEO (city manager) is charged with the

responsibility for implementing decisions of the council, providing advice to

council, and ensuring eective, ecient and economical management of the

activities and planning of the local authority.Over the last decade, local government has become increasingly independent

of central government. Central government has simultaneously devolved cer-

tain responsibilities, and reduced the extent of nancial assistance and subsi-viewers and radio listeners, and therefore aects the advertising rate. The po-

sitive relationship between press coverage and disclosure is, however, not sup-

ported in Ingrams (1984) study that nds a negative relationship betweennewspaper circulation and disclosure quality of nancial reports.

It is, perhaps, not surprising that prior studies have yielded inconsistent re-

sults for certain variables. Relative to the private sector, the theory of volun-tary disclosure in the public sector is at a comparatively early stage and still

requires the development of a critical mass of research literature. Further, un-

like the private sector, which is generally more homogeneous in nature, the

diversity of public sector contexts, public sector entities objectives, regulatoryenvironments, and available archival data, has necessitated the use of dierent

metrics for similar concepts across prior studies. The present study attempts to

contribute towards the development of a critical body of voluntary disclosure

research in the public sector using well established constructs drawn from priorpublic sector literature, and, where possible, similar metrics. Further, the study

is limited to a single regulatory environment and includes local authorities of

varying sizes, ranging from small to large.

3. Local government in New Zealand

There are 86 local authorities in New Zealand structured into two principal

F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101121 105dies, to local government. The United Nations Economic and Social

Commission for Asia and the Pacic (2001) estimates that 90% of New Zealand

local government funding is now locally sourced. Corresponding accountabil-

ity is achieved through the requirement of local authorities to engage in a con-

sultative planning process, the publication and dissemination of an annual plan

(forecast information) and an audited annual report, and the requirement that

local authorities develop, implement, and maintain long-term nancial strate-

gies together with investment and borrowing policies. Despite the largelyautonomous nature of local government, the Minister of Local Government

ing have been removed with the passing of the Local Government Amendment

Act 1996 (No. 3).

106 F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101121A number of agency relationships can be identied in the New Zealand local

authority setting. These include relationships between voters (and interest

groups) and local political managers, creditors and local political managers,

central government bureaucrats and local political managers, and counciland appointed local political managers.

4. Hypotheses

This section develops the studys hypotheses relating to the factors expectedto aect New Zealand local authorities discretionary use of the Internet fornancial reporting. It draws heavily on the literature and theory reviewed inthe preceding section. The study does not attempt to model in detail all possible

agency relationships pertaining to local authority entities.4 Instead, it focuses

on those that we believe are most relevant to a discussion of external nancial

reporting on the Internet.

4 The objective of this study is to examine whether managerial incentives models are appropriate

for public sector settings. While this study is not aimed at directly comparing the public and private

sectors, it could be argued that the managerial incentives in both sectors are somewhat similar for

the following reasons: (1) in New Zealand, managers move between the two sectors. Appointments

open to public sector managers are also open to private sector managers; (2) as part of the reform

of the public sector in New Zealand, greater emphasises has been placed on commercial and

nancial objectives and transparency. The alignment of reporting standards is motivated by thesein the central government has the power to appoint a review authority to re-

view a specic council where the Minister believes that there has been a signif-

icant and identiable failure of governance (e.g., mismanagement of resources

or deciencies in the management or decision-making processes of the

authority).

The four main sources of funds for New Zealand councils are property rates

(tax), grants from central government, income from user charges, and loans.Nowadays, the only kind of subsidy from central government is for road con-

struction and maintenance. Many of the restrictions on local authority borrow-objectives; and (3) a number of studies have used managerial incentives in the private sector as

models for explaining public sector behaviour.

4.1. Disclosure incentives: Political competition

F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101121 107The supply of potential oce holders and the corresponding risk of defeat at

future elections, reduces the deviation between voters and political agentsinterests (Zimmerman, 1977). High levels of political competition increase

the long run cost to elected ocials of ignoring pre-election promises, andmotivate incumbents to agree to bear greater monitoring costs (Baber, 1983;

Evans and Patton, 1987). The Internet is a cost-eective mechanism for the

instantaneous and simultaneous dissemination of information to voters, and

therefore may be an important medium for discharging political agents incre-mental monitoring obligations.

Further, Baber and Sen (1984) argue that political competition makes . . .incumbents more vulnerable to claims by political rivals of irresponsible man-

agement, and therefore increases incentives to engage in self-regulationthatis, to demonstrate a commitment to ecient managementby using accepted

reporting methods . . . (p. 94). There is evidence that the use of the Internet fornancial reporting is fast becoming the norm in the private sector internation-

ally.5 Indeed, the US Securities and Exchange Commission (SEC) has stated

that as more investors have access to and use the Internet, the Commission will

consider encouraging the use of the Internet as a prime dissemination tool

(SEC, 2001). Accordingly, the voluntary use of the Web for nancial reporting

by some local authorities in New Zealand may represent an attempt to demon-strate self-regulation in the form of compliance with best practice reportingmethods.

The rst hypothesis (in alternate form), then is

H1 There is a positive association between political competition and the vol-

untary use of the Internet for nancial reporting.

4.2. Disclosure incentives: Size

Baber (1983) argues that the number and magnitude of wealth transfers

administered by political agents may increase competition for public oce.

Increasing political competition makes it more costly for incumbent political

agents to ignore pre-election agreements with supporting voters (or interest

groups), so political agents have an incentive to bear greater monitoring costs

by supplying more information which demonstrates their execution of pre-elec-tion promises (Baber, 1983).5 For example, see Lymer et al. (1999).

Given the need for greater disclosure by large local authorities, it is expected

that such entities will tend to adopt a variety of disclosure methods. The Inter-

net is likely to be a particularly ecient means of satisfying the political man-

108 F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101121agers voluntary disclosure incentives in large local authorities, as the cost ofinformation production and dissemination on the Internet is likely to be largely

independent of their size (Ettredge et al., 2002; Pirchegger and Wagenhofer,1999). As a consequence, the benets of disclosure over the Internet are likely

to be increasing with size (Debreceny et al., 2002; Pirchegger and Wagenhofer,

1999).

The second hypothesis (in alternate form), then is

H2 There is a positive association between local authority size and the volun-

tary use of Internet nancial reporting.

4.3. Disclosure incentives: Leverage

It has been argued that the use of debt to nance public activities provides

an incentive for political managers to reduce the cost of debt (Zimmerman,

1977). This may be achieved through the voluntary disclosure of information

that facilitates monitoring by creditors (Zimmerman, 1977; Baber, 1983; Baber

and Sen, 1984; Ingram, 1984; Ingram and DeJong, 1987; Christiaens, 1999;Gore, 2004). Such incremental disclosure can occur through traditional hard

copy nancial statements and other media, such as Internet nancial reporting.

Therefore:

H3 There is a positive association between local authority leverage and the

voluntary use of Internet nancial reporting.

4.4. Disclosure incentives: Municipal wealth

Christiaens (1999) argues that municipal wealth should be positively asso-ciated with increased disclosure because it provides a signal of management

quality, which may benet local politicians by increasing their chances of re-

election and reducing interest costs. Christiaens, following Ingram (1984), uses

own revenue per capita6 as a proxy for municipal wealth. Poorer performinglocal authorities may avoid using voluntary disclosure techniques, such as

6 Ingram (1984) denes own revenue per capita as general revenues other than intergovern-

mental transfers. Such intergovernmental transfers are negligible in New Zealand since the reforms

to the public sector discussed in Section 3.

Internet nancial reporting (IFR), preferring instead to, . . . restrict access toaccounting information to more determined users (Craven and Marston,

1999, p. 323). Hence:

F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101121 109H4 There is a positive association between local authority municipal wealth

and the voluntary use of Internet nancial reporting.

4.5. Disclosure incentives: Press visibility

As discussed in Section 2, Zimmerman (1977) identied the role of the press

in the agency relationship between voters and politicians. Consistent with Zim-

merman (1977), Ingram (1984, p. 130) argues that a strong press, . . . mightinduce more disclosures to satisfy the information demands of the press or evenas a defensive mechanism for politicians. Thus:

H5 There is a positive association between the frequency of press reporting on

local government activities, and the voluntary use of Internet nancial

reporting by local authorities.

4.6. Disclosure incentives: Council type

While the incentives for individual voters to monitor political behaviour ap-

pear limited, coalitions of voters (such as political parties, industrial or occupa-

tional coalitions, etc.) have greater incentives to do so due to their potential

ability to inuence the outcome of elections via collective voting (Baber,

1983; Ingram, 1984). Local political managers of councils subject to the scru-

tiny of cohesive coalitions will have corresponding incentives to facilitate the

supply of information useful in the monitoring of their actions. As urbanisa-tion facilitates the formation of coalitions (Ingram, 1984), it is probable that

local political managers in councils with proportionately large populations in

metropolitan areas have greater incentives to voluntarily provide monitoring

information than managers in councils with relatively large rural populations.

Coupled with the fact that urbanisation has been associated with Internet ac-

cess and usage,7 it is also probable that voluntary IFR disclosures will be high-

est among city councils and regional councils relative to district councils. Both

city and regional councils have higher proportions of rate payers in major

7 For example, see Falling Through the Net: Dening the Digital DivideA Report on theTelecommunications and Information Technology Gap in America (July 1999) and subsequent

updates produced by the National Telecommunications and Information Administration (NTIA).

metropolitan areas relative to district councils. Consequently, the sixth hypoth-

esis is as follows:

H6 District councils engage in less voluntary use of Internet nancial reporting

than do regional or city councils.

5. Research design

The 86 local authorities in New Zealand comprise 12 regional, 15 city,

and 59 district councils, respectively. The website addresses of local authori-

ties were identied through the Local Government New Zealand website

, Local Government Online , andLocal Government Website Index . Local authorities

not listed on these three websites were contacted by telephone to obtain their

website addresses. Table 1 shows that 61 out of 86 local authorities maintain

websites.

Local authorities use the Internet to provide a wide range of information. Of

particular relevance to this study, only 30 (about 49%) of local authorities with

Council type Total

110 F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101121Regional City District No. of local

authorities

%

Financial highlights only 1 3 4 13.3

Annual reports only 1 1 2 6.7

Annual plan only 1 6 7 14 46.7

Combinations of annual reports,

plans and nancial highlights

3 4 3 10 33.3Table 1

Local authorities maintenance of websites

Type Regional

council

City council District

council

Total

No. % No. % No. % No. %

With website 11 92 15 100.0 35 59 61 71

Without website 1 8 0 0.0 24 41 25 29

Total 12 100.0 15 100.0 59 100.0 86 100.0

Table 2

The nature of published nancial information on the Internet (n = 30)Total 6 10 14 30 100

Table 3

Research variables

Variable Denition

Political competition

Ratio of candidates to positionNumber of candidates

Positions available

Size

Total assets Average total assets

Total revenue Average total revenue

Leverage

Long-term liabilities: total assetsLong-term liabilities

Total assets

Long-term liabilities

Total public equity

Municipal wealth

Own revenue per capitaAverage total revenue

Population

Press visibility

News item count Number of news items in the print press

in which the local authority appeared during 2000,

as measured by a count search on Newzindex

Council type

F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101121 111websites provide nancial information on those sites. Table 2 provides a break-

down of the type of nancial information provided on websites.

Table 3 presents the denitions of the research variables used in this study.

Financial data for local authorities were collected from the nancial informa-

tion on the websites of local authorities (where available) and from hard copies

of their annual reports and plans. The nancial accounting data cover the

three-year period 19971999. Two proxies each were used to alternatively rep-

resent the size and leverage variables. Size was represented by total assets andtotal revenue, while leverage was represented by total long-term liabilities to

total assets and total long-term liabilities to total public equity.

Consistent with Christiaens (1999) and Ingram (1984), municipal wealth was

proxied by own revenue per capita. The ratio of candidates to positions in thelast local government election is employed as a proxy for political competition.

This proxy measures the intensity of competition in local government elections.

Data for this measure was obtained from the Local Authority Election Statis-

tics publication (Department of Internal Aairs, 1999). Press visibility is mea-sured by the number of news items appearing in the print press in 2000

obtained from the New Zealand electronic database Newsindex. In prior re-

search, newspaper circulation has been used as a surrogate for strength of press

(Ingram, 1984). However, Ingram (1984) concluded that this measure was not

Form of local authority Type of council: District, city, or regional

Table 4

Descriptive statistics and univariate sample tests

Variable Statistic All local

authorities

(n = 86)

Local authorities with websites

N-IFRAsa

(n = 31)

IFRAsa

(n = 30)

t-

Statistic

Panel A: Descriptive statistics and sample t-test of continuous variables

Political competition

Ratio of candidates

to position

Mean 2.340 2.280 2.550 1.497*

Median 2.300 2.300 2.400

Std Deviation .676 .647 .739

Minimum 1.000 1.000 2.000

Maximum 4.000 4.000 4.000

Size

Total assets Mean 462,976,620 428,723,543 685,017,202 1.500*

Median 313,585,333 358,378,167 351,140,547

Std Deviation 583,818,905 404,488,828 843,789,091

Minimum 23,847,016 41,350,667 79,517,333

Maximum 3,514,577,000 2,093,541,667 3,514,577,000

Total revenue Mean 59,040,543 49,381,664 102,011,514 1.658*

Median 31,512,110 33,865,500 42,209,450

Std Deviation 107,957,370 59,803,279 163,249,508

Minimum 3,271,316 5,229,119 5,593,333

Maximum 828,545,333 268,047,333 828,545,333

Leverage

Long-term liabilities:

total assets

Mean .067 .053 .075 1.193

Median .036 .041 .058

Std Deviation .122 .058 .083

Minimum .000 .000 .000

Maximum .967 .282 .436

Long-term liabilities:

total public equity

Mean .080 .059 .103 1.207

Median .038 .038 .065

Std Deviation .162 .082 .182

Minimum .000 .000 .000

Maximum 1.008 .418 1.008

Municipal wealth

Own revenue

per capita

Mean 902 872 938 .424

Median 849 818 878

Std Deviation 525 610 589

Minimum 87 103 87

Maximum 3,432 3,432 2,629

Press visibility

News item count Mean 17.480 7.480 38.030 2.443***

Median 3.000 3.000 6.000

Std Deviation 43.657 12.119 68.532

Minimum 0.000 0.000 0.000

Maximum 276.000 48.000 276.000

112 F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101121

authorities in New Zealand using both univariate and multivariate approaches.

Local authorities are categorised into those providing nancial reports on theInternet (IFRAs) (n = 30) and those that maintain a website but choose not to

use it to disseminate nancial information (N-IFRAs) (n = 31).

Univariate independent sample t-tests are carried out on the independent

variables for the two main groupings of local authorities to test for possible dif-ferences in the means of the selected variables between IFRAs and N-IFRAs.an eective proxy. Descriptive statistics for all the present studys independentvariables are presented in Table 4.

A local authoritys engagement in Internet nancial reporting is measured asa dichotomous variable, which reects whether the local authority does or does

not provide nancial information on the web.

6. Data analysis

The aim of this study is to identify the determinants of IFR among local

Table 4 (continued)

Pearson Chi-square statistic

Council type N-IFRA IFRA Total Value df Sig. (2-tailed)

Panel B: Chi-square test of categorical independent variable

Regional 5 6 11 3.142 2 .208

City 5 10 15

District 21 14 35

Total 31 30 61

***,* Denote signicance at the 1%, 5%, and 10% (one-tailed) levels, respectively.a IFRAs = Internet nancial reporting local authorities; N-IFRAs = Non-Internet nancial

reporting local authorities.

F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101121 113Table 4 presents the results of these tests.

Logit analysis is used to determine the association of the independent vari-

ables with the dichotomous (IFRA vs. N-IFRA) Internet nancial reporting

practice dependent variable. Logit allows the predication of a discrete outcome

(e.g., IFRA vs. N-IFRA) from a set of independent variables, which may be

continuous, discrete, dichotomous, or a mixture. Logit can be used to ascertain

which variables predict an outcome and how these variables aect an outcome(Tabachnick and Fidell, 1996).

Expressed in its full form with respect to this study, the logit equation is

IFRi a b1Political competitioni b2Sizei b3Leveragei b4Municipal wealthi b5Press visibilityi b6Council typei li 1

similar relationship is apparent for the alternative measure of leverage, totallong-term liabilities to total assets.On average, IFRAs generated more wealth (own revenue per capita) than

N-IFRAs. Their mean of $938 compares with $872 for N-IFRAs. IFRAs are

also more visible in the print press, with a mean press visibility count of 38

news items as compared to only 7 news items for N-IFRAs. The level of

publicity experienced, however, varies signicantly among IFRAs, ranging

between a minimum of no news items and a maximum of 276 news items.

N-IFRAs minima was nil, with a maxima of 48.

7.2. Univariate data analysiswhere, for the, ith authority, IFR is the IFR practice: 0 for N-IFRAs and 1 for

IFRAs, a is constant of the equation, Political competition is the ratio of candi-dates to council positions, Size is either total assets or total revenue, Leverage is

either long-term liabilities: total assets or long-term liabilities: total public equity,

Municipal wealth is own revenue per capita, Press visibility is the news items

count, Council type is 1 if district council and 0 otherwise and l is the error term.As predictor variables in logit models do not have to be normally distrib-

uted, linearly related, or of equal variance within each group (Tabachnick

and Fidell, 1996, p. 575; Hair et al., 1995, p. 130), none of the independent vari-

ables are transformed for the logit analysis. Table 5 contains the logit results.

7. Results and discussion

7.1. Descriptive statistics

Table 4 reveals that the intensity of political competition is higher in IFRAs

relative to N-IFRAs. The mean ratio of candidates competing for council posi-

tions is 2.55 (median = 2.40) for IFRAs as compared to 2.28 (median 2.30) for

N-IFRAs.

Table 4 also shows that IFRAs are larger than N-IFRAs. The mean total

assets of IFRAs, at $685.017 million, is considerably greater than that of N-IFRAs ($428.724 million). The largest IFRA had total assets of $3514.577 mil-

lion, as compared to $2093.542 million for the largest N-IFRA. This trend is

repeated across the alternative measure of size, total revenue. This preliminary

result is similar to those reported by studies of IFR in the private sector (Ashb-

augh et al., 1999; Oyelere et al., 2003).

IFRAs appear more highly leveraged, with mean long-term liabilities to

total public equity ratio of 0.10:1 as compared to 0.06:1 for N-IFRAs. A

114 F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101121The results of univariate tests of dierences between IFRAs and N-IFRAs

are presented in Panels A and B of Table 4. The results indicate statistically sig-

Table 5

Multivariate regression results

Logit analysis

IFRi = a + b1Political competitioni + b2Sizei + b3Leveragei + b4Municipal wealthi+ b5Press visibilityi + b6Council typei + li

Variable Expected sign Model coecients (Std. error)

Model Aa Model Ba Model Ca Model Da

Constant +/ .169 .209 .462 .516(1.537) (1.544) (1.513) (1.513)

F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101121 115nicant dierences between the two groups of local authorities on the bases of

political competition, size, and press visibility.

Panel A of Table 4 reveals that political competition is more intense in

IFRAs than N-IFRAs. The ratio of candidates to council positions in IFRAs

is statistically signicantly higher at the 10% level.

Similarly, IFRAs are signicantly larger than N-IFRAs (at the 10% level

using either proxy for size). This result is consistent with the ndings of previ-

ous studies on the characteristics of local authorities (and their variants), con-rming size as a determining variable at the univariate level (Baber, 1983;

Evans and Patton, 1987; Christiaens, 1999).

Political competition + .274 .312 .479 .507(.637) (.640) (.612) (.614)

Size + .000 .000 .000 .000

(.000) (.000) (.000) (.000)

Leverage + 1.276 1.278 2.399 1.856

(4.775) (2.843) (4.628) (2.733)

Municipal wealth + .001 .001 .001 .001

(.001) (.001) (.001) (.001)

Press visibility + .039* .038* .032 .031

(.023) (.023) (.023) (.022)

Council type 1.016 1.011 .985 1.007(.810) (.806) (.842) (.843)

Log likelihood 70.444 70.291 71.438 71.169

Nagelkerke R2 .233 .236 .214 .219

Chi-square statistic 11.330* 11.484* 10.337 10.606

Degrees of freedom 6 6 6 6

Number of observations 60 60 60 60

Correctly predicted

N-IFR 75.9 72.4 72.4 72.4

IFR 56.7 56.7 56.7 56.7

Overall 66.1 64.4 64.4 64.4

* Denote signicance at the 1%, 5%, and 10% levels, respectively.a Proxies for size and leverage, respectively, are as follows: Model A-total assets and long-term

liabilities: total assets; Model B-total assets and long-term liabilities: total public equity; Model C-

total revenue and long-term liabilities: total assets; and Model D-total revenue and long-term

liabilities: total public equity.

IFRAs are not statistically signicantly more highly nancially leveraged

than N-IFRAs. However, at the 1% level, IFRAs are more visible in the press

116 F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101121than N-IFRAs. This high level of positive association between IFR practice

and press visibility may not be surprising, given that both are media for com-

municating information, nancial or otherwise, to the stakeholders of the local

authorities. Ingram (1984) discusses the potential inuence of the press onnancial disclosure levels of governments. Panel B of Table 4 indicates no asso-

ciation between council type and the practice of Internet nancial reporting.

To summarise the ndings of univariate tests carried out in this study, on

average IFRAs are signicantly larger, have greater political competition for

their councillor positions, and are more politically visible in the press than

N-IFRAs.

7.3. Multivariate regression analysis

Table 5 presents the results of the multivariate analysis (corresponding to Eq.

(1)) where the dependent variable is a dichotomous variable indicating whether

a local authority does or does not provide Internet nancial information.

Since two alternative proxies are used to measure size and leverage, the re-

sults of the estimation of four combinations (models) are reported. Total assets

is used as a proxy for size in Models A and B, while total revenue is used in-

stead in Models C and D. With respect to leverage, total long-term liabilitiesto total assets is used in Models A and C, while long term liability to total pub-

lic equity is used in Models B and D.

The results of Cooks Distance test revealed that one outlier had a dispropor-tionately large inuence on the models.8 Consequently, the relevant case was ex-

cluded from subsequent analysis, leaving a total of 60 local authorities. The

overall predictive ability of the four logit models ranged from 64.4% to 66.1%.

Of the four models reported in Table 5, two (models A and B) are signicant

as a whole, based on Chi-square statistics. In both of these models, only pressvisibility is signicant in the predicted direction, providing weak support for H5.

Press visibility is statistically signicantly related to local authorities IFR atthe 10% level in both Models A and B. Local authorities that are highly visible

in the press media are more likely to engage in IFR. This is as predicted, and

indicates that the press media inuences the agency relationship between voters

and local authority managers. Local authorities that are more press-visible are

more likely to proactively seek and use other channels of communication such

as the Internet. This result is consistent with Ingrams (1984) hypothesis withrespect to press strength and voluntary hard copy nancial disclosure.8 Removing problematic outliers assists in removing distortion from statistical tests and leads to a

better understanding of the phenomena being examined (Hair et al., 1995, pp. 5758).

At rst sight, the results reported in Table 5 appear to provide weak support

for only one of the studys hypotheses. However, an alternative interpretationof the results is possible by virtue of the fact that the studys sample consists ofthe entire population of New Zealand local authorities with websites at the

time of the study. As long as there is no intention to make inferences from

the results beyond New Zealand local authorities, the studys sample may, infact, be regarded as a 100% sample. When a sample represents the entire pop-

ulation, tests of signicance are generally less meaningful because any non-zero

regression coecient must, with certainty, be non-zero for the population as a

whole.9 Each regression coecient is regarded as an actual population value

(which is a constant) rather than as an estimator (with associated sampling dis-

tribution) of a population value (Kish, 1965).

F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101121 117Using this alternative interpretation of the results, it is apparent that, in

addition to press visibility, three further variables (leverage, municipal wealth,and council type) are non-zero and in the predicted direction across all

models.10

Among New Zealand local authorities, leverage (H3) appears to be posi-

tively associated with IFR practices. Table 5 reveals such a relationship across

all four models. This result suggests that political managers of New Zealand

municipalities, which are subject to relatively high debt burdens, perceive

IFR as a potential means of facilitating monitoring by creditors. The result

is also consistent with the ndings in several previous public sector voluntarydisclosure studies conducted in the US (e.g., Ingram and DeJong, 1987; Evans

and Patton, 1987; Gore, 2004).

The results in Table 5 suggest that municipal wealth (H4), as proxied by

own revenue per capita, is directly associated with the practice of IFR forNew Zealand local authorities. This nding is consistent with that of Ingram

(1984) and suggests that this variable is perceived by management as an impor-

tant indicator of their quality in the New Zealand public sector environment.

9 It is acknowledged that tests of signicance could be meaningful in these circumstances if

measures of dependent and explanatory variables are regarded as being random draws from

distributions of possible values. This could be seen to be the case, for example, for a measure such

as stock returns based on closing price minus opening price. One more or less transaction on the

relevant day could have resulted in a dierent closing stock price. This is consistent with the

superpopulation concept, under which a nite population may be regarded as being drawn from a

larger universe (Cassel et al., 1977). However, we do not believe that this view is particularly

applicable to this study, as its measurements of variables, such as size, are likely to be highly

correlated from day to day and even from year to year. (We are grateful to one of the manuscriptsreviewers for this observation.)10 Interpretation of the results reported in Table 5 in the proposed manner must be tempered by

the possibility that, whilst the coecients corresponding to the three additional variables arereliably dierent from zero, they may be close to zero (i.e., have shallow slopes). This may explainthe prevailing lack of signicance in the models generally.

(40%) engage in IFR than regional (55%) or city (67%) councils, respectively.

The Internet is, at least at its initial stage, an urban phenomenon. This perhapsexplains its relatively greater use by city councils and, to a lesser extent, regio-

nal councils, for nancial reporting purposes. Ingram (1984) also found urban-ization to have a signicant inuence on disclosure practices.

As is apparent from Table 5, the expected positive association between polit-

ical competition (H1) and New Zealand local authorities IFR practices was notfound. This nding is surprising given previous ndings in the governmental

sector nancial disclosure literature (Baber, 1983; Baber and Sen, 1984; In-

gram, 1984). It appears that IFR is not seen by political managers of New Zea-

land local authorities as a critical means of demonstrating self-regulation in the

form of compliance with best practice reporting methods, even in the presenceof intense political competition. In fact, the greater the intensity of political

competition, the lesser the tendency of managers of local authorities to use

the Internet to voluntarily report nancial information.

Also surprising was the fact that size (H2) (across all four models) was found

not to be a predictor of IFR among New Zealand local authorities. It appears

that, unlike the ndings of earlier studies in both the public sector (Baber,

1983; Evans and Patton, 1987; Christiaens, 1999) and private sector nancial

disclosure literature (Courtis, 1979; McNally et al., 1982; Cooke, 1989a,b,1991, 1992; Hossain et al., 1995; Wallace et al., 1994; Wallace and Naser,

1995; Inchausti, 1997; Owusu-Ansah, 1998; Ashbaugh et al., 1999; Debreceny

et al., 2002; Ettredge et al., 2002; Oyelere et al., 2003), size does not appear to

be an important explanatory variable for IFR practices of New Zealand local

authorities. Larger New Zealand local authorities may not be taking full

advantage of the potential economies of scale benets that may be available

from the use of the Internet for nancial information dissemination.

In summary, support was found for four out of the six alternate hypothesesstated in this study based on the results of multivariate analysis. The predicted

positive associations between leverage (H3), municipal wealth (H4), and press

visibility (H5), on the one hand, and IFR practices on the other, were supported.

Also, the predicted negative relationship between council type (H6) and IFR

practices was also borne out by the studys results. However, the hypothesespostulating a positive relationship between IFR practices, on the one hand,

and political competition (H1) and size (H2) on the other, were not supported.

8. Summary and conclusionCouncil type (H6) is a predictor of IFR among New Zealand local author-

ities. As evident in Panel B of Table 4, a lower proportion of district councils

118 F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101121The reform of public sector nancial reporting in New Zealand, where it is

aligned with practices in the private sector, and the development of the Internet

and other theories highlighting the incentives for voluntary disclosures in the

public sector.

Results are largely consistent with expectations. The results of logit analysis

indicates that whether or not local authorities in New Zealand use IFR can be

predicted based on their level of nancial leverage, municipal wealth, press vis-

ibility and council type. Both local authority size and level of political compe-

tition were not found to be useful predictors of IFR. Local authorities that are

more highly leveraged or that create relatively more municipal wealth than

other authorities, are more likely to engage in IFR. New Zealand local author-

ities that are more visible in the press are also more likely to use the Internet toprovide nancial information, a conrmation of the role of a strong press in

ensuring greater nancial accountability and transparency. Also, it is apparent

that district councils engage in less voluntary nancial disclosure through the

Internet than city and regional councils, possibly due to the urban nature

of the Internet and relatively lower level of access. This eect is likely to dissi-

pate signicantly in the near future.

Future research opportunities include the development of a disclosure index

for disclosure on the Internet that has not been included in other reporting out-lets, such as hard copy nancial reports. The inclusion of other nancial and

non-nancial variables, such as management compensation and qualication,

may assist the development of improved predictive models of voluntary disclo-

sure in the public sector. Future research may control for other variables such

as the strength of the information technology departments, where the greater

the expenditure the local authority allocates to such departments, the more

likely it is to disclose on the Internet. Future studies may also consider exam-

ining the timeliness of disclosure on the Internet and how it compares with thetimeliness of reporting in other media. This study is based on New Zealand

practices; studies in other countries and international comparisons of determi-

nants of IFR would be useful in the development of a comprehensive predictive

disclosure model in the public sector, or at least a segment of the public sector,

in an electronic environment such as the Internet.

Acknowledgments

We are grateful for the valuable comments we have received from the Jour-

nals reviewers on an earlier draft of the paper. We acknowledge the researchas an information medium provide a unique opportunity for the development

and renement of disclosure behaviour models in the public sector. This study

examined the possible determinants of discretionary Internet nancial disclo-

sure practices by local authorities in New Zealand in the context of agency

F. Laswad et al. / Journal of Accounting and Public Policy 24 (2005) 101121 119assistance provided by Shireen Zaharudin and Fareeha Shareef, and the com-

ments and suggestions received from participants at the 2002 Annual Meeting

Debreceny, R., Gray, G., Rahman, A., 2002. The determinants of Internet nancial reporting.Journal of Accounting and Public Policy 21 (4/5), 371394.

Department of Internal Aairs, 1999. Local Authority Election Statistics 1998. Department of

Internal Aairs, Wellington, New Zealand.

Ettredge, M., Richardson, V.J., Scholz, S., 2002. Dissemination of information for investors at

corporate websites. Journal of Accounting and Public Policy 21 (4/5), 357369.

Evans III, J.H., Patton, J.M., 1987. Signalling and monitoring in public-sector accounting. Journal

of Accounting Research 25 (Suppl.), 130158.

Giroux, G., 1989. Political interests and governmental accounting disclosure. Journal of

Accounting and Public Policy 8 (3), 199217.of the American Accounting Association, the 9th IAAER World Congress of

Accounting Educators, 2002 and the 2001 Annual Conference of the Account-

ing Association of Australia and New Zealand. We also beneted from useful

comments by Jesse Hughes, Ken Smith, Stephen Owusu-Ansah and the late

R.S. Olusegun Wallace. Financial support was provided from the Summer

Scholarship and Research Assistantship Grants of Lincoln Universitys Com-merce Division.

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Determinants of voluntary Internet financial reporting by local government authoritiesIntroductionLiterature reviewAgency relationships and the incentives for disclosure in the public sectorIncentives for voluntary disclosure in the public sector

Local government in New ZealandHypothesesDisclosure incentives: Political competitionDisclosure incentives: SizeDisclosure incentives: LeverageDisclosure incentives: Municipal wealthDisclosure incentives: Press visibilityDisclosure incentives: Council type

Research designData analysisResults and discussionDescriptive statisticsUnivariate data analysisMultivariate regression analysis

Summary and conclusionAcknowledgmentsReferences