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Does Financial Slack Reduce Municipal Short†Term Borrowing?

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  • Min Su
  • W. Bartley Hildreth

Abstract

Many municipal governments face the challenge of temporary cash deficits due to the mismatched schedules of cash flow†ins and flow†outs. To smooth the temporary deficits, they can use either internal financial resources such as financial slack or external financial resources such as short†term borrowing. This paper applies the pecking order theory to examine municipal governments' financial preference when they experience cash flow problems. Results show that municipal governments prefer accumulated financial slack to short†term borrowing when both options are available. This finding demonstrates financial slack's role as a convenient cash management tool in municipal financial management. It also suggests the applicability of the pecking order theory in future public financial management research.

Suggested Citation

  • Min Su & W. Bartley Hildreth, 2018. "Does Financial Slack Reduce Municipal Short†Term Borrowing?," Public Budgeting & Finance, Wiley Blackwell, vol. 38(1), pages 95-113, March.
    • Handle: RePEc:bla:pbudge:v:38:y:2018:i:1:p:95-113
    DOI: 10.1111/pbaf.12189
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    Cited by:

    1. Craig L. Johnson & Tima T. Moldogaziev & Martin J. Luby & Ruth Winecoff, 2021. "The Federal Reserve Municipal Liquidity Facility (MLF): Where the municipal securities market and fed finally meet," Public Budgeting & Finance, Wiley Blackwell, vol. 41(3), pages 42-73, September.
    2. Michelle L. Lofton, 2022. "The impact of excess taxing capacity on short‐term resources," Public Budgeting & Finance, Wiley Blackwell, vol. 42(1), pages 3-27, March.
    3. Sedmihradská Lucie, 2023. "Fiscal savings of Czech municipalities: Precaution or inaction of their administration?," Review of Economic Perspectives, Sciendo, vol. 23(3), pages 203-216, September.
    4. Victoria Perez & Joseph A. Benitez & Justin Ross, 2021. "Too small to fail: The role of Medicaid in mitigating pandemic‐related fiscal strain on local governments," Public Budgeting & Finance, Wiley Blackwell, vol. 41(3), pages 74-97, September.
    5. Michelle L. Lofton & Sharon N. Kioko, 2021. "The use of short‐term debt by general‐purpose governments," Public Budgeting & Finance, Wiley Blackwell, vol. 41(4), pages 71-93, December.
    6. Michelle L. Lofton & Mikhail Ivonchyk, 2022. "Financial manager professionalism and use of interfund transfers: Evidence from Georgia counties," Public Budgeting & Finance, Wiley Blackwell, vol. 42(2), pages 171-195, June.

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