Doctor of Philosophy

dissertationThe primary goals of financial reporting for U.S. state governments are to provide useful information for assessing whether governments' fiscal performance over the short term and the operational effectiveness of governmental activities with a longer-term perspective are met. To fulfill these objectives, the Governmental Accounting Standards Board (GASB) requires state governments to prepare two sets of financial statements: one on a full accrual basis and another on a modified accrual basis. The GASB contends that providing both sets of statements increases the overall informativeness of governmental reports. Using hand-collected data from the 50 U.S. state governments from 2002 to 2015, this paper provides empirical evidence regarding the contexts in which the two financial reporting models provide information that is either redundant or incrementally useful. Results show that, on average, (1) full- and modified-accrual-basis financial statements similarly explain current outcomes and predict future outcomes associated with the welfare of citizens (measured as gross state product, personal disposable income, and unemployment), and (2) full-accrual-basis financial statements better explain and predict current and future credit risk. These findings support the GASB's conjecture that full-accrual-basis financial statements provide more useful information to creditors; however, findings do not support the conjecture that modified-accrual-basis financial statements provide incrementally useful information about either credit risk or citizens' welfare