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10 March 2025

Accounting-Based Analysis of the Size Effect of Local Government Organizations on Their Post-Merger Performance: Evidence from Greece †

,
and
1
Department of Business Administration, International Hellenic University, 62124 Serres, Greece
2
Department of Economics, International Hellenic University, 62124 Serres, Greece
*
Author to whom correspondence should be addressed.
†
Presented at the 1st International Conference on Public Administration 2024, Katerini, Greece, 31 May–1 June 2024.
Proceedings2024, 111(1), 13;https://doi.org/10.3390/proceedings2024111013
This article belongs to the Proceedings 1st International Conference on Public Administration 2024
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Abstract

The purpose of this study is to analyze the effect of mergers on the performance of local government organizations (LGOs) in Greece, using public accounting. More specifically, this research analyzes the progress of performance at several LGOs (municipalities) by employing accounting-based data (derived from the statements of LGOs) after the mergers that took place in Greece and tries to identify the existence or non-existence of differences in their performance that is possibly due to their different sizes, based on total revenues of municipalities in Greece. The obtained results indicate that medium-size LGOs present a better performance in all financial ratios and public accounting metrics. The present research can provide an important framework for further analysis and study of differences in the implementation of public economic policies after mergers in LGOs.

1. Introduction

The residents of each state should enjoy satisfactory and adequate services both at the national and local levels. Therefore, local government organizations (LGOs) must be able to provide high-quality services by evaluating and making the best use of their revenues and expenses [1]. By adopting new forms of control and using financial measurements and accounting data, LGOs can achieve better results and an effective strategic presence at the local level with an active development role [2]. The new dynamic role that LGOs are called to play in public life by implementing new effective tools was influenced by the New Public Management (NPM), as in the rest of the public sector [3,4]. In the framework of the NPM, new strategic forms of administration appeared, such as the integration of public entities, as well as in LGOs, through mergers [5,6].
The new architecture of local government and decentralized administration implemented in Greece through the Law 3852/2010 “Kallikratis” program of mergers has altered the topography of Greek municipalities by allowing for the creation of new LGOs through general mergers of former municipalities [7]. For many years, the private sector had mergers that followed NPM viewpoints, but the outcomes were unclear [8,9,10,11,12,13,14,15,16]. But Kallikratis’ reform was put into effect when things were severe for Greek society. In 2010, the entire country had recently come out of an economic crisis during which the Troika (International Monetary Fund, the European Union, and the European Central Bank) closely tracked the national budget [15]. Due to the fiscal disorder, there was a pressure for quick economic recovery, along with attempts to lower spending and raise municipal revenues [2]. As a result, their efficient financial management is crucial, and the only way the new municipalities can survive is if they are successful in achieving positive financial outcomes [1,7].
Taking into account everything previously mentioned, the analysis of the accounts of many LGOs in Greece with varying income and expense sizes is examined in order to determine whether or not there were variations in their performance. By evaluating these crucial public accounting measures, it is possible to assess the financial performance of Greek LGO mergers over time by examining their examination of critical metrics related to financial performance by employing basic accounting metrics for the years 2011–2017, which would be of particular interest for any stakeholder of Greek LGOs.
Lastly, the rest of the content of this paper is as follows: the next section presents the materials and methods used in this research; the following section analyzes and discusses the results; and the last section concludes this paper.

2. Materials and Methods

2.1. Research Sample

This research aims to assess Greek municipalities’ accounting performance following mergers and the adoption of the Kallikratis program, which occurred in the aftermath of the financial crisis (2011 and beyond). The Kallikratis program’s outcomes are evaluated in light of the performance of variously sized and performing municipalities, as in many other past studies [17,18,19,20]. In particular, twenty-one Greek municipalities are analyzed in terms of their overall performance and per group analysis. Randomly selected, seven large Greek municipalities with an annual revenue of over fifty million euros were picked, along with seven medium-sized Greek municipalities with an annual revenue of between fifty million and ten million euros, and seven small Greek municipalities with an annual revenue under ten million euros.

2.2. Quantitative Variables (Accounting Measures)

This research, like many other studies, utilizes a number of accounting measures (of public accounting data) from the financial statements of twenty-one Greek municipalities [1,2,6,16,21,22]. Financial statement and ratios analysis are widely used for the evaluation of merger events diachronically [23,24,25,26,27]. Some of the primary accounting metrics (three financial ratios and two accounting metrics) for the municipalities under examination are specifically examined as basic indicators of financial performance: (a) the total level of revenues divided by total expenses is provided; (b) the amount of grants received for operating purposes divided by the amount of total revenues; and (c) the amount of financial extraordinary grants for investments divided by the amount of total revenues are presented; also (d) the total level of revenues and (e) the total expenses are evaluated. The first year of the Greek Kallikratis initiative, which began in 2011, and the next six years (starting in 2017) are all included in the financial statement analysis. Data for LGOs were received from the Hellenic Ministry of the Interior. Table 1 lists the accounting metrics that this study examined as quantitative variables (from public accounting data).
Table 1. Quantitative variables (accounting measures).

2.3. Methodology

This research analyzes the performance of twenty-one Greek municipalities that were obligated to integrate under the Kallikratis program using a number of accounting indicators. These quantitative variables (e.g., revenue, expenses, etc.) show various conditions of LGOs. Data are used to show the performance following the merger from the first year of the Greek Kallikratis program until 2017. After calculating the mean from the total of each accounting measure for large, median, and small size LGO sub-samples, this study attempts to determine whether these mergers were beneficial and for which particular size of Greek municipalities.

3. Results and Discussion

Based on the data examined in this research, the descriptive statistics of the whole sample are presented in the following table (Table 2).
Table 2. Descriptive statistics after mergers for all LGOs.
Based on the results obtained initially for the entire sample examined (Table 3), it is observed that, although the revenues (Var04) increased slightly, the expenses increased (Var05) from 2011 to 2017 by 3.11%. Also, the variable Var02 (ratio of grants received for operating purposes to total revenues) shows a gradual decline comparing successively the year 2011 with 2013, 2013 with 2015, and then 2015 with 2017 (−17.63%, −2.19%, and −0.80%, respectively). Regarding Var03 (ratio of grants received for investments to total revenues), it is revealed that the ratio increased from 2011 to 2017 by 28.25%. Lastly, the variable Var01 slightly worsened over time.
Table 3. Results from quantitative variables (accounting measures) after mergers for all LGOs.
Regarding the results obtained for the large municipalities of the sample (Table 4), Var01 (ratio of total revenues to total expenses) worsened from 2011 to 2017 by approximately 5%. The ratio Var02 (grants received for operating purposes to total revenues) shows a gradual decline. With reference to Var03 (grants received for investments to total revenues), it is observed that the ratio increased marginally. The total revenues (Var04) decreased successively in the years 2011 to 2013, in 2013 to 2015, and then from 2015 to 2017 (−0.99%, −1.59%, and −0.45%, respectively). As for total expenses (Var05), they moved over time at approximately the same levels for the examined time period.
Table 4. Results from quantitative variables (accounting measures) after mergers for large LGOs.
From the results for medium-sized municipalities (Table 5), the variable Var01 (ratio of total revenues to total expenses) almost remained unchanged over time. The ratio Var02 shows a significant drop of around 20% overall. Var03 improved on a large scale over time. Revenues (Var04) increased over time in the years 2011 to 2017 by 10.61%, while total expenses (Var05) increased over time to around 9%.
Table 5. Results from quantitative variables (accounting measures) after mergers for median LGOs.
The sample results for the small municipalities (Table 6) show that, initially, the variable Var01 worsened over time from the years 2011 to 2017 by 6.22%. The ratio Var02 (grants received for operating purposes to total revenues) shows a significant drop of around 20% overall. Var03 (grants received for investments to total revenues) initially improved from 2011 to 2013, but then gradually worsened and this significant increase was limited. Total revenues (Var04) decreased slightly over time, while total expenses (Var05) increased over time from 2011 to 2017 by 6.15%.
Table 6. Results from quantitative variables (accounting measures) after mergers for small LGOs.
These results for medium-sized municipalities show a better picture for this category of municipalities compared to large and small municipalities. In particular, medium-sized municipalities have a small increase in total revenues relative to total expenses (Var01), a significant increase in their financial autonomy (Var02) as their dependence on state-granted revenues improved. Also, the increase in the ratio Var03 (ratio of grants received for investments to total revenues) shows an increase in the ability of medium-sized municipalities to draw funds from various external sources of financing (e.g., European funds). Finally, total revenues per year (Var04) improved to a better level than in any other case (large or small municipalities), while total expenses per year (Var05) increased at a lower rate than revenues, thus showing an overall improved performance for medium-sized municipalities.

4. Conclusions

Greek municipalities, like any other local government organization (LGO), are financially and administratively independent and have a significant impact on the local economy and development. This study’s objective is to evaluate Greek municipalities’ accounting practices throughout the economic crisis that began in 2011 and continued through the implementation of the “Kallikratis” mergers’ program. The forced municipal merger scheme, known as Kallikratis, was implemented in Greece on 31 December 2010 and significantly decreased the number of Greek municipalities.
In this study, a number of accounting measures (including three financial ratios and two accounting metrics, extracted from public accounting data) are examined for twenty-one Greek municipalities in order to assess the success of the Kallikratis program during a challenging time for Greece (during the period of Greek sovereign debt crisis). The research project attempts to determine whether the size of municipalities matters in order to achieve a better outcome in these circumstances. The results reveal that medium-size municipalities achieve better financial performance, in comparison to large and small municipalities in Greece.
The current study can offer a valuable platform for additional investigation into the variations in how public economic policies are implemented following mergers in LGOs. Also, it could be a useful tool for the formulation of state policies in case of LGOs’ mergers from other nations. Furthermore, this study’s findings could be helpful to Greek and European state authorities in the future when comparing them to similar studies. Lastly, these findings may be expanded to span a longer control period, incorporate more accounting metrics or financial ratios for various comparisons for the same or different analyzed periods, or be helpful in future studies for comparison at the municipal level from other nations.

Author Contributions

The authors contributed equally to the paper. All authors have read and agreed to the published version of the manuscript.

Funding

No funding was received.

Institutional Review Board Statement

Not applicable.

Data Availability Statement

Data are available upon reasonable request and communication with the corresponding author.

Conflicts of Interest

The authors declare no conflicts of interest.

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