The association between accounting performance and constituent response in political markets

Abstract

Purpose – The purpose of this paper is to investigate whether constituents respond to local government accounting data. Since 2006, New Zealand local authorities (councils) have been required to disclose long-term accounting data relating to forecast operating revenue and expenses. Design/methodology/approach – The authors test whether the difference between the actual operating expenditure as reported in the annual report and as forecasted is associated with electoral outcomes. Findings – The authors find that accounting performance and the sign of accounting performance (i.e. expenditure over-runs) are associated with greater councilor re-election. Furthermore, accounting performance is also associated with greater voter turnout. Originality/value – The production and disclosure of council planning data is based on the perceived accountability of the council to its constituents. The authors find that accounting, in an electoral context, has both information content and conveys good/bad news about accounting performance to voters.