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Abstract

Purpose –This paper aims to investigate whether the amount of local governments’ debt can be predictedby the level of political competition.Design/methodology/approach – The study uses the artificial neural network (ANN) to test whetherANN can “learn” from the observed data and make reliable out-of-sample predictions of the target variablevalue (i.e. a local government’s debt level) for given values of the predictor variables. An ANN is a nonparametric prediction tool, that is, not susceptible to the common limitations of regression-based parametricforecasting models, e.g. multi-collinearity and latent non-linear relations.Findings – The study finds that “political competition” is a useful predictor of a local government’s debtlevel. Moreover, a positive relationship between political competition and debt level is indicated, i.e. increasesin political competition typically leads to increases in a local government’s level of debt.Originality/value – The study contributes to public sector reporting literature by investigating whetherpublic debt levels can be predicted on the basis of political competition while discounting factors such as“political ideology” and “fragmentation”. The findings of the study are consistent with the expectationsposited by public choice theory and have implications for public sector auditing, policy and reportingstandards, particularly in terms of minimising potential political opportunism.

Item Type:	Article
Authors/Creators:	Chatterjee, B and Bhattacharya, S and Taylor, G and West, B
Keywords:	New Zealand, debt
Journal or Publication Title:	Accounting Research Journal
Publisher:	Emerald Publishing Limited
ISSN:	1030-9616
DOI / ID Number:	10.1108/ARJ-11-2016-0146
Copyright Information:	© Emerald Publishing Limited
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