AbstractWe examine whether governments’ infrastructure-related financial reporting policies are associated with their infrastructure investment decisions. Variation in governments’ infrastructure reporting policies results from the flexibility provided by GASB Statement No. 34, which permits state and local governments to select between two methods of reporting infrastructure assets: the traditional depreciation approach and the modified approach. In light of the increased financial reporting requirements associated with the modified approach, we use the adoption of the modified approach as a proxy for higher-quality financial reporting about infrastructure assets. We find that modified approach governments invest more in infrastructure assets and maintain their infrastructure at a higher condition level than governments using the depreciation approach. We employ a difference-in-differences research design and conduct additional analyses to help mitigate endogeneity concerns. Our results suggest that governments’ financial reporting policies influence their infrastructure investment decisions, which ultimately impacts businesses, citizens, and governments. Our findings also raise the question of whether the lack of reporting about infrastructure maintenance and repairs prevents stakeholders from ascertaining the magnitude and consequences of deferred infrastructure investments.
SubjectsInfrastructure assets, Investment, Deferred maintenance, GASB Statement No. 34, Financial reporting, State and local governments.
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