Abstract:

The average payment period (APP) is an important measure to monitor public sector liquidity and commercial debt sustainability. In European Union, the relevance of APP as an indicator to mitigate those concerns was settled by the issuance of Directive 2011/7/EU. Then, considering the possible use of the APP as an advanced measure for financial distress, this paper aims to assess if the APP plays a relevant role in explaining the data for 308 Portuguese municipalities' financial distress. Panel data regression is used for the period between 2011 and 2019 (the last year available for APP). The findings show that the number of municipalities that exceed the debt limit has been reducing. However, some of them comply with the 30 days threshold being, nonetheless, in a financial distress situation and subject to recovery mechanisms. This paper contributes to previous studies on the municipalities' financial condition, namely by considering the APP in the analysis of the financial situation of the municipalities. As a novelty, this study considers a new proxy for municipal financial distress (based on Law 73/2013, on September 3) and panel data analysis.