<abstract xmlns="http://www.w3.org/1999/xhtml"><p>This paper investigates whether municipalities in Poland use their municipal companies to increase debt capacity beyond the limitations imposed by the fiscal debt rules. The article presents corporate governance and agency problems on the example of relations between local government units and affiliated companies. We review and link literature on corporate finance, in particular capital structure, and public finance - debt liabilities of municipalities. We analyse a sample of 2,019 observations of municipalities and their municipal companies using the Ordinary Least Squares (OLS) method, where explanatory variables were taken from the public and corporate finance (leverage and its determinants). Results show that long-term debt of municipalities is positively associated with the leverage and size of municipal companies, but it is negatively related to their profitability.</p></abstract>

This paper investigates whether municipalities in Poland use their municipal companies to increase debt capacity beyond the limitations imposed by the fiscal debt rules. The article presents corporate governance and agency problems on the example of relations between local government units and affiliated companies. We review and link literature on corporate finance, in particular capital structure, and public finance - debt liabilities of municipalities. We analyse a sample of 2,019 observations of municipalities and their municipal companies using the Ordinary Least Squares (OLS) method, where explanatory variables were taken from the public and corporate finance (leverage and its determinants). Results show that long-term debt of municipalities is positively associated with the leverage and size of municipal companies, but it is negatively related to their profitability.

Do local governments use municipal companies for off-balance-sheet financing?

Alumni of Faculty of Economic Sciences University of Warsaw

Faculty of Economic Sciences University of Warsaw

Central European Economic Journal

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

{"article-title":"Do local governments use municipal companies for off-balance-sheet financing?"}

This paper investigates whether municipalities in Poland use their municipal companies to increase debt capacity beyond the limitations imposed by the fiscal...

Do local governments use municipal companies for off-balance-sheet financing?

Published Online: Dec 12, 2020

Page range: 242 - 257

DOI: https://doi.org/10.2478/ceej-2020-0014

Keywords
debt, municipal companies, municipalities, corporate governance, off-balance-sheet financing

© 2020 Weronika Stobieniecka et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Do local governments use municipal companies for off-balance-sheet financing?

Published Online: Dec 12, 2020

Page range: 242 - 257

DOI: https://doi.org/10.2478/ceej-2020-0014

Keywordsdebt, municipal companies, municipalities, corporate governance, off-balance-sheet financing

© 2020 Weronika Stobieniecka et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Keywords
debt, municipal companies, municipalities, corporate governance, off-balance-sheet financing