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A Factor Analytic Assessment of Financial Sustainability: The Case of New South Wales Local Government

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  • Joseph Drew
  • Brian Dollery

Abstract

Financial sustainability in local government remains a pressing problem which has seen a host of public policy interventions, including compulsory consolidation and performance monitoring through financial sustainability ratios. In September 2014, the New South Wales (NSW) Government announced a reform program centred on increasing scale in local government to make councils ‘fit for the future’. We apply factor analysis to the financial ratios informing the NSW Government's reform initiative to identify the underlying factors for observed financial performance data. We find evidence indicating that three independent underlying factors account for the adopted measures of financial sustainability. The public policy implication arising from this study suggests that the reforms imposed by the NSW Government on NSW municipalities may only meet with limited successa.

Suggested Citation

  • Joseph Drew & Brian Dollery, 2016. "A Factor Analytic Assessment of Financial Sustainability: The Case of New South Wales Local Government," Australian Accounting Review, CPA Australia, vol. 26(2), pages 132-140, June.
    • Handle: RePEc:bla:ausact:v:26:y:2016:i:2:p:132-140
    DOI: 10.1111/auar.12092
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    References listed on IDEAS

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    1. Joseph Drew & Brian Dollery, 2014. "The impact of metropolitan amalgamations in Sydney on municipal financial sustainability," Public Money & Management, Taylor & Francis Journals, vol. 34(4), pages 281-288, July.
    2. George Boyne & Gareth Enticott, 2004. "Are the 'Poor' Different? The Internal Characteristics of Local Authorities in the Five Comprehensive Performance Assessment Groups," Public Money & Management, Taylor & Francis Journals, vol. 24(1), pages 11-18.
    3. Randall G. Holcombe & DeEdgra W. Williams, 2008. "The Impact of Population Density on Municipal Government Expenditures," Public Finance Review, , vol. 36(3), pages 359-373, May.
    4. Stewart Jones & R. G. Walker, 2007. "Explanators of Local Government Distress," Abacus, Accounting Foundation, University of Sydney, vol. 43(3), pages 396-418, September.
    5. Joseph Drew & Brian Dollery, 2015. "Inconsistent Depreciation Practice and Public Policymaking: Local Government Reform in New South Wales," Australian Accounting Review, CPA Australia, vol. 25(1), pages 28-37, March.
    6. George Boyne & Rachel Ashworth & Martin Powell, 2001. "Environmental Change, Leadership Succession and Incrementalism in Local Government," Journal of Management Studies, Wiley Blackwell, vol. 38(6), pages 859-878, September.
    7. K.G. Willis & N.A. Powe & G.D. Garrod, 2005. "Estimating the Value of Improved Street Lighting: A Factor Analytical Discrete Choice Approach," Urban Studies, Urban Studies Journal Limited, vol. 42(12), pages 2289-2303, November.
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