The Determinants of Organizational Innovativeness: A Study of GASB 34 in Pennsylvania Local Government

In 1999, the Government Accounting Standards Board passed GASB Statement No. 34 (GASB 34), which required local governments to prepare certain financial statements using the modified accrual basis. GASB 34 also required many local governments to record and depreciate their infrastructure assets on a retroactive basis.GASB 34 is perhaps the most important change in government accounting history due to the improvements it will make in the transparency and accountability of government financial reporting, but the provisions of GASB 34 have been unpopular, costly, and difficult to implement. Adoption is mandatory, but the consequences for failing to adopt are minimal, since there is little regulatory oversight over the financial reporting of local governments. Given these conditions, the extent to which local governments have adopted GASB 34 is unknown.This study used Everett Rogers' model of organizational innovativeness to identify the organizational determinants associated with the adoption of GASB 34 in Pennsylvania local government. The model contained three organizational components: organizational culture, organizational structure, and the external environment. Proxies of organizational culture were the propensity to innovate and responsiveness to constituents. Proxies of organizational structure were occupational specialization, functional differentiation, administrative intensity, organizational size, and slack resources. Proxies of the external environment were debt financing and percentage of intergovernmental revenue. The research question was: Can a model of organizational innovativeness identify the determinants of the adoption of GASB 34 among Pennsylvania local governments?The logistic regression indicated that organizational size was a strong and consistent determinant of adoption, supporting the hypothesis that larger Pennsylvania local governments are more likely to adopt administrative innovations such as GASB 34 than smaller local governments. The propensity to innovate and responsiveness to constituents were also included in the model, but the predictive ability of these variables was much weaker than that of organizational size. Overall, the results suggested that components of organizational culture and structure can be determinants of the adoption of administrative innovations such as GASB 34.