Explanatory factors of the financial condition in the municipalities of Minas Gerais

Abstract

Purpose: Identify the explanatory factors of the financial condition of small municipalities in Minas Gerais. Methodology: From the perspective of the Theory of Financial Condition, the research was carried out in two stages: first, the financial condition of the municipalities was calculated using Brown's (1993) model; next, the financial variables capable of influencing the financial condition of the municipalities in the sample were identified. To do this, accounting information was collected in the period 2017-2020, from 229 municipalities in the state of Minas Gerais that had a population of less than 5 thousand inhabitants in 2020. An econometric model with panel data was used for the analysis of the relations. Results: The variables Personnel Expenditure (GP) and Degree of Indebtedness (GE) were significant at a 1% level, with GP being positively related and GE negatively related to the government's financial condition. Therefore, the results prove the existence of financial factors related to budget solvency and long-term solvency that affect the financial condition of small municipalities. Contributions of the Study: The research contributes to the literature on the explanatory factors of the financial condition by analyzing small municipalities, using a model consolidated in the international literature, especially amid the discussion of PEC 188/2019, on the merger of these municipalities. In addition, it can help public managers in decision-making, by pointing out the explanatory factors that explain the municipality’s financial condition.