The Association between Accounting Performance and Constituent Response in Political Markets

Abstract

Since 2006, New Zealand local authorities (councils) have been required to disclose long-term accounting data relating to forecast operating revenue and expenses. The production and disclosure of council planning data is based on the perceived accountability of the council to its constituents. This paper examines whether characteristics of the 2007 and 2010 New Zealand council elections are associated with accounting performance, measured as the unexpected difference in operating expenditure. We find that that accounting performance and the sign of accounting performance (i.e., expenditure over-runs) are associated with greater councillor re-election. Furthermore, accounting performance is also associated with greater voter turnout. Thus we find that accounting, in an electoral context, has both information content and conveys good/bad news to voters.

Keywords: Local government elections, accountability, accrual accounting, planning, political markets

JEL Classification: M40, M41, O56