Beyond Public Debt: Uncovering the Hidden Liabilities of Governments Through Public Sector Financial Reporting
Keywords:
Hidden Government Liabilities, Public Sector Financial Reporting, Public Debt, Fiscal Transparency, Agency Theory, Government Accountability.
Abstract
This study aims to examine hidden government liabilities and their implications for public sector financial reporting through a Systematic Literature Review (SLR) approach. A total of 50 scientific articles were analyzed to identify the characteristics, sources, disclosure practices, and fiscal consequences of unreported government obligations. The findings indicate that hidden liabilities arise from various sources, including government guarantees, state-owned enterprises, pension obligations, off-budget financing, and long-term financial commitments. Furthermore, transparency and the quality of public sector financial reporting play essential roles in identifying fiscal exposures beyond officially reported public debt. However, institutional weaknesses, limited disclosure practices, fragmented financial information, and differences in accounting standards remain significant challenges. Drawing on Agency Theory, this study highlights the importance of information transparency and accountability in reducing information asymmetry between governments and the public. This review contributes to public sector accounting literature by providing an integrated understanding of hidden liabilities and fiscal sustainability.
References
Ahmed, M., Shu, C., Luo, D., & Ali, A. (2026). Enhancing CSR performance in emerging market firms: The effects of pro-market reforms, government support, and internationalization. Journal of Business Research, 210, Article 116151. https://doi.org/10.1016/j.jbusre s.2026.116151
Akkoyun, C., Ersahin, N., & James, C. M. (2023). Crowded out from the beginning: Impact of government debt on corporate financing. Journal of Financial Intermediation, 56, Article 101046. https://doi.org/10.1016/j.jfi.2023.101046
Anantharaman, D., & Henderson, D. (2021). Contrasting the information demands of equity- and debt-holders: Evidence from pension liabilities. Journal of Accounting and Economics, 71, Article 101366. https://doi.org/10.1016/j.jacceco.2020.101366
Bi, S., Wei, N., Du, A. M., & Zhou, T. (2025). Mitigating financing constraints under economic uncertainty: The role of implicit government guarantees in China. Research in International Business and Finance, 76, Article 102819. https://doi.org/10.1016/j.ribaf.202 5.102819
Biondi, Y. (2016a). Accounting representations of public debt and deficits in European central government accounts: An exploration of anomalies and contradictions. Accounting Forum, 40, 205–219. https://doi.org/10.1016/j.accfor.2016.05.003
Biondi, Y. (2016b). Public debt accounting and management in UK: Refunding or refinancing? Or, the strange case of Doctor Jekyll and Mr Hyde in the aftermath of the Global Financial Crisis. Accounting Forum, 40, 89–105. https://doi.org/10.1016/j.accfor.2016.02.003
Caglayan, M., Mateut, S., & Zanchettin, P. (2024). Political affiliation, cash flow volatility, and debt maturity in China. The British Accounting Review, 56, Article 101299. https://doi.org/10.1016/j.bar.2023.101299
Cao, Y., Zhou, X., Chen, Y., Lu, M., & Shan, Y. (2026). Government-led accountability and stock price crash risk: Evidence from a governance reform in China. Journal of Contemporary Accounting & Economics, 22, Article 100591. https://doi.org/10.1016/j.jcae.2026.100591
Chang, H., & Wu, K.-S. (2027). Does ESG reduce hospitality firms' cost of debt? Roles of information asymmetric and internal control quality. International Journal of Hospitality Management, 140, Article 104882. https://doi.org/10.1016/j.ijhm.2026.104882
Chen, X., Dai, N. T., Liu, M., So, R. H. Y., & Tan, Z. S. (2025). Can government policies tackle maturity mismatches? Evidence from a quasi-natural experiment in China. Journal of Corporate Finance, 95, Article 102889. https://doi.org/10.1016/j.jcorpfin.2025.102889
Chen, Z., Pan, J., Wang, L., & Shen, X. (2016). Disclosure of government financial information and the cost of local government's debt financing—Empirical evidence from provincial investment bonds for urban construction. China Journal of Accounting Research, 9, 191–206. https://doi.org/10.1016/j.cja R.2016.02.001
Choi, H. M., & Gupta-Mukherjee, S. (2024). Public sector unions and municipal debt. Global Finance Journal, 60, Article 100968. https://doi.org/1 0.1016/j.gfj.2024.100968
Croce, M., Nguyen, T. T., & Raymond, S. (2021). Persistent government debt and aggregate risk distribution. Journal of Financial Economics, 140, 347–367. https://doi.org/10.1016/ j.jfineco.2021.01.004
Croce, M. M., Nguyen, T. T., Raymond, S., & Schmid, L. (2019). Government debt and the returns to innovation. Journal of Financial Economics, 132, 205–225. https://doi.org/10.1016/j.jfineco.2018.11.010
Crosignani, M. (2021). Bank capital, government bond holdings, and sovereign debt capacity. Journal of Financial Economics, 141, 693–704. https://doi.org/1 0.1016/j.jfineco.2021.04.005
Damodaran, A., & van den Heuvel, O. (2023). India's low carbon value chain, green debt, and global climate finance architecture. IIMB Management Review, 35, 97–107. https://doi.org/10.1016/j.iimb.2023.03.005
Demirci, I., Huang, J., & Sialm, C. (2019). Government debt and corporate leverage: International evidence. Journal of Financial Economics, 133, 337–356. https://doi.org/10.1016/j.jfineco.2019.03.009
Dimitropoulos, P. E. (2025). Principle-based accounting standards and earnings management in private hotel firms: The impact on government subsidies. Advances in Accounting, 68, Article 100812. https://doi.org/10.1 016/j.adiac.2025.100812
Gu, Y. (Jenny), Filatotchev, I., Bell, R. G., & Rasheed, A. A. (2019). Liability of foreignness in capital markets: Institutional distance and the cost of debt. Journal of Corporate Finance, 57, 142–160. https://doi.org/10.1016/j.jcorpfin.2017.10.014
Hossain, M. S., & Rahman, M. (2025). Does the presence of GC in the top management team affect debt financing choices? Advances in Accounting, 69, Article 100844. https://doi.org/10.1016/j.adiac.2025.100844
Hu, J., Yuan, L., Liu, B., & Li, T. (2025). Government fiscal stress and firms' choice of affiliates. Journal of Contemporary Accounting & Economics, 21, article 100470. https://doi.org/10.1016/j.jcae.2025.100470
Huang, G.-Y., Shen, C. H.-H., & Wu, Z.-X. (2023). Firm-level political risk and debt choice. Journal of Corporate Finance, 78, Article 102332. https://doi.org/10.1016/j.jcorpfin.2022.102332
Huang, J., Wang, Y., & Zhu, M. (2026). Gains from targeting? Government subsidies and firm performance in China. Journal of Corporate Finance, 99, Article 103010. https://doi.org/10.1016/j.jcorpfin.2026.103010
Jiang, H., Peng, L., & Li, W. (2026). Government as a major customer: The impact of government procurement on digitalization-related innovation for supplier firms. Research in International Business and Finance, 91, Article 103645. https://doi.org/10.1016/j.ribaf.20 26.103645
Jiang, H., Su, K., & Habib, A. (2025). Government subsidies and managerial slack: Evidence from China. Journal of Contemporary Accounting & Economics, 21, Article 100473. https://doi.org/10.1016/j.jcae.2025.100473
Jiang, T., Zhang, M., & Chen, J. (2025). Demographic shifts and the strategic use of flexible off-budget debt tools. Emerging Markets Review, 66, Article 101283. https://doi.org/10.1016/j.ememar.2025.101283
Lara-Rubio, J., Navarro-Galera, A., Buendía-Carrillo, D., & Gómez-Miranda, M. E. (2022). Analysing financial risks of local governments to design sustainability policies for public services: An empirical study by the population size. Cities, 128, Article 103795. https://doi.org/10.1016/j.cities.2022.103795
Li, F., Xue, R., Du, M., & Yang, Y. (2026). Expansion of local government debt and stock price crash risk: Evidence from China. Research in International Business and Finance, 87, Article 103401. https://doi.org/10.101 6/j.ribaf.2026.103401
Li, Y., Tong, J., & Zhong, Y. (2026). Debt contract enforcement and conservatism: New evidence from the establishment of Bankruptcy Courts in China. The British Accounting Review. Advance online publication. https://doi.org/10.10 16/j.bar.2026.101945
Lin, J., Lu, Y., Zhou, M., & An, Y. (2026). Government debt, government ownership, and corporate cash dividends. Journal of Corporate Finance, 99, Article 102994. https://doi.org/10.1016/j.jcorpfin.2026.102994
Lin, Y., Zheng, L., & Zhong, Q. (2025). Public data openness and stock price crash risk: Evidence from a quasi-natural experiment of government data platforms. Data Science and Management, 8, 284–295. https://doi.org/10.1016 /j.dsm.2024.11.002
Lu, L. Y., Sun, Z., Wang, D., Yu, Y., & Zhao, B. (2026). Corporate corruption under local government financial stress: The role of land finance in China. Journal of Contemporary Accounting & Economics, 22, Article 100583. https://doi.org/10.1016/j.jcae.2026.100583
Lu, Y., Zhang, J., Mao, J., & Gao, S. (2024). Land financialization and debt expansion: Evidence from city–county mergers in China. Cities, 146, Article 104679. https://doi.org/10.1016/ j.cities.2023.104679
Luo, J., Wei, Q., & Yi, X. (2026). Government-firm vs. government-business connections and outward foreign direct investment in China. Journal of International Management, 32, Article 101328. https://doi.org/10.1 016/j.intman.2026.101328
Ma, R., Yan, B., & Yan, Y. (2026). Debt for jobs? The impact of industrial park infrastructure special debt on urban employment in China. Cities, 174, Article 107088. https://doi.org/10.1016/j.cities.2026.107088
Martinez, A. B. (2015). How good are US government forecasts of the federal debt? International Journal of Forecasting, 31, 312–324. https://doi.org/ 10.1016/j.ijforeca st.2014.08.014
Ping, W., Li, J., Liu, M., & Guo, Y. (2026). Local government debt risk in China: Measurement and interprovincial spillover effects. Research in International Business and Finance, 90, Article 103540. https://doi.org/10.10 16/j.ribaf.2026.103540
Qian, X., Liu, Z., Wu, Q., & Zeng, C. (2026). Major government customers and corporate court outcomes: Evidence from China. Journal of Corporate Finance, 98, Article 102966. https://doi.org/10.1016/j.jcorpfin.2026.102966
Schmid, L., Valaitis, V., & Villa, A. T. (2026). Government debt management and inflation with real and nominal bonds. Journal of Financial Economics, 182, Article 104293. https://doi.org/10.1016/j.jfineco.2026.104293
Shailer, G., & Wang, K. (2015). Government ownership and the cost of debt for Chinese listed corporations. Emerging Markets Review, 22, 1–17. https://doi.org/10.1016/j.eme mar.2014.11.002
Wang, F., Chen, X., & Yang, G. (2025). Fiscal expenditure responsibilities of public–private partnerships and corporate innovation investment—Evidence from prefecture-level cities in China. China Journal of Accounting Research, 18, Article 100416. https://doi.org/10.1016/j.cjar.2025.100416
Wang, Q., & Zhu, R. (2026). Corporate cost uniqueness and debt maturity structure: Perspective of new structural economics. Research in International Business and Finance, 90, Article 103534. https://doi.org/10.1016/j.ribaf.2026.103534
Xiong, W., & Ye, Z. (2026). Political tournaments, government outsourcing, and unproductive infrastructure: Evidence from China's highway projects. Cities, 174, Article 106981. https://doi.org/10.1016/j.cities.2026.106981
Xu, L., & Niu, Q. (2026). Promoting green innovation: The pivotal role of government environmental information disclosure. Journal of Innovation & Knowledge, 13, Article 100937. https://doi.org/10.1016/j.jik.2026.100937
Xu, S., Chen, Z., & Liu, S. (2026). Hindrance or facilitation? Environmental responsibility and green innovation in China's new energy firms under government environmental attention. Journal of Innovation & Knowledge, 17, Article 101046. https://doi.org/10.1016/j.jik. 2026.101046
Yang, M., Meng, Y., & Li, Y. (2026). Managerial integrity: The bridge to lower cost of debt. Research in International Business and Finance, 91, Article 103604. https://doi.org/10.1016/j.ribaf.2026.103604
Yuan, R., Liu, M., & Li, M. (2026). Government certification and cost of equity: Evidence from the specialization, refinement, differentiation, and innovation policy. Emerging Markets Review, 74, article 101500. https://doi.org/10.1016/j.ememar.2026.101500
Zhang, G., Lin, Q., & Chan, K. C. (2026). The effect of local government debt on corporate accounting conservatism. The British Accounting Review. Advance online publication. https://doi.org/10.1016/j.bar.2026.101953
Zhang, Y. (2025). Debt distribution and ESG performance: Evidence from Chinese listed companies. Research in International Business and Finance, 73, Article 102589. https://doi.org/10.1016/j.ribaf.2024.102589
Akkoyun, C., Ersahin, N., & James, C. M. (2023). Crowded out from the beginning: Impact of government debt on corporate financing. Journal of Financial Intermediation, 56, Article 101046. https://doi.org/10.1016/j.jfi.2023.101046
Anantharaman, D., & Henderson, D. (2021). Contrasting the information demands of equity- and debt-holders: Evidence from pension liabilities. Journal of Accounting and Economics, 71, Article 101366. https://doi.org/10.1016/j.jacceco.2020.101366
Bi, S., Wei, N., Du, A. M., & Zhou, T. (2025). Mitigating financing constraints under economic uncertainty: The role of implicit government guarantees in China. Research in International Business and Finance, 76, Article 102819. https://doi.org/10.1016/j.ribaf.202 5.102819
Biondi, Y. (2016a). Accounting representations of public debt and deficits in European central government accounts: An exploration of anomalies and contradictions. Accounting Forum, 40, 205–219. https://doi.org/10.1016/j.accfor.2016.05.003
Biondi, Y. (2016b). Public debt accounting and management in UK: Refunding or refinancing? Or, the strange case of Doctor Jekyll and Mr Hyde in the aftermath of the Global Financial Crisis. Accounting Forum, 40, 89–105. https://doi.org/10.1016/j.accfor.2016.02.003
Caglayan, M., Mateut, S., & Zanchettin, P. (2024). Political affiliation, cash flow volatility, and debt maturity in China. The British Accounting Review, 56, Article 101299. https://doi.org/10.1016/j.bar.2023.101299
Cao, Y., Zhou, X., Chen, Y., Lu, M., & Shan, Y. (2026). Government-led accountability and stock price crash risk: Evidence from a governance reform in China. Journal of Contemporary Accounting & Economics, 22, Article 100591. https://doi.org/10.1016/j.jcae.2026.100591
Chang, H., & Wu, K.-S. (2027). Does ESG reduce hospitality firms' cost of debt? Roles of information asymmetric and internal control quality. International Journal of Hospitality Management, 140, Article 104882. https://doi.org/10.1016/j.ijhm.2026.104882
Chen, X., Dai, N. T., Liu, M., So, R. H. Y., & Tan, Z. S. (2025). Can government policies tackle maturity mismatches? Evidence from a quasi-natural experiment in China. Journal of Corporate Finance, 95, Article 102889. https://doi.org/10.1016/j.jcorpfin.2025.102889
Chen, Z., Pan, J., Wang, L., & Shen, X. (2016). Disclosure of government financial information and the cost of local government's debt financing—Empirical evidence from provincial investment bonds for urban construction. China Journal of Accounting Research, 9, 191–206. https://doi.org/10.1016/j.cja R.2016.02.001
Choi, H. M., & Gupta-Mukherjee, S. (2024). Public sector unions and municipal debt. Global Finance Journal, 60, Article 100968. https://doi.org/1 0.1016/j.gfj.2024.100968
Croce, M., Nguyen, T. T., & Raymond, S. (2021). Persistent government debt and aggregate risk distribution. Journal of Financial Economics, 140, 347–367. https://doi.org/10.1016/ j.jfineco.2021.01.004
Croce, M. M., Nguyen, T. T., Raymond, S., & Schmid, L. (2019). Government debt and the returns to innovation. Journal of Financial Economics, 132, 205–225. https://doi.org/10.1016/j.jfineco.2018.11.010
Crosignani, M. (2021). Bank capital, government bond holdings, and sovereign debt capacity. Journal of Financial Economics, 141, 693–704. https://doi.org/1 0.1016/j.jfineco.2021.04.005
Damodaran, A., & van den Heuvel, O. (2023). India's low carbon value chain, green debt, and global climate finance architecture. IIMB Management Review, 35, 97–107. https://doi.org/10.1016/j.iimb.2023.03.005
Demirci, I., Huang, J., & Sialm, C. (2019). Government debt and corporate leverage: International evidence. Journal of Financial Economics, 133, 337–356. https://doi.org/10.1016/j.jfineco.2019.03.009
Dimitropoulos, P. E. (2025). Principle-based accounting standards and earnings management in private hotel firms: The impact on government subsidies. Advances in Accounting, 68, Article 100812. https://doi.org/10.1 016/j.adiac.2025.100812
Gu, Y. (Jenny), Filatotchev, I., Bell, R. G., & Rasheed, A. A. (2019). Liability of foreignness in capital markets: Institutional distance and the cost of debt. Journal of Corporate Finance, 57, 142–160. https://doi.org/10.1016/j.jcorpfin.2017.10.014
Hossain, M. S., & Rahman, M. (2025). Does the presence of GC in the top management team affect debt financing choices? Advances in Accounting, 69, Article 100844. https://doi.org/10.1016/j.adiac.2025.100844
Hu, J., Yuan, L., Liu, B., & Li, T. (2025). Government fiscal stress and firms' choice of affiliates. Journal of Contemporary Accounting & Economics, 21, article 100470. https://doi.org/10.1016/j.jcae.2025.100470
Huang, G.-Y., Shen, C. H.-H., & Wu, Z.-X. (2023). Firm-level political risk and debt choice. Journal of Corporate Finance, 78, Article 102332. https://doi.org/10.1016/j.jcorpfin.2022.102332
Huang, J., Wang, Y., & Zhu, M. (2026). Gains from targeting? Government subsidies and firm performance in China. Journal of Corporate Finance, 99, Article 103010. https://doi.org/10.1016/j.jcorpfin.2026.103010
Jiang, H., Peng, L., & Li, W. (2026). Government as a major customer: The impact of government procurement on digitalization-related innovation for supplier firms. Research in International Business and Finance, 91, Article 103645. https://doi.org/10.1016/j.ribaf.20 26.103645
Jiang, H., Su, K., & Habib, A. (2025). Government subsidies and managerial slack: Evidence from China. Journal of Contemporary Accounting & Economics, 21, Article 100473. https://doi.org/10.1016/j.jcae.2025.100473
Jiang, T., Zhang, M., & Chen, J. (2025). Demographic shifts and the strategic use of flexible off-budget debt tools. Emerging Markets Review, 66, Article 101283. https://doi.org/10.1016/j.ememar.2025.101283
Lara-Rubio, J., Navarro-Galera, A., Buendía-Carrillo, D., & Gómez-Miranda, M. E. (2022). Analysing financial risks of local governments to design sustainability policies for public services: An empirical study by the population size. Cities, 128, Article 103795. https://doi.org/10.1016/j.cities.2022.103795
Li, F., Xue, R., Du, M., & Yang, Y. (2026). Expansion of local government debt and stock price crash risk: Evidence from China. Research in International Business and Finance, 87, Article 103401. https://doi.org/10.101 6/j.ribaf.2026.103401
Li, Y., Tong, J., & Zhong, Y. (2026). Debt contract enforcement and conservatism: New evidence from the establishment of Bankruptcy Courts in China. The British Accounting Review. Advance online publication. https://doi.org/10.10 16/j.bar.2026.101945
Lin, J., Lu, Y., Zhou, M., & An, Y. (2026). Government debt, government ownership, and corporate cash dividends. Journal of Corporate Finance, 99, Article 102994. https://doi.org/10.1016/j.jcorpfin.2026.102994
Lin, Y., Zheng, L., & Zhong, Q. (2025). Public data openness and stock price crash risk: Evidence from a quasi-natural experiment of government data platforms. Data Science and Management, 8, 284–295. https://doi.org/10.1016 /j.dsm.2024.11.002
Lu, L. Y., Sun, Z., Wang, D., Yu, Y., & Zhao, B. (2026). Corporate corruption under local government financial stress: The role of land finance in China. Journal of Contemporary Accounting & Economics, 22, Article 100583. https://doi.org/10.1016/j.jcae.2026.100583
Lu, Y., Zhang, J., Mao, J., & Gao, S. (2024). Land financialization and debt expansion: Evidence from city–county mergers in China. Cities, 146, Article 104679. https://doi.org/10.1016/ j.cities.2023.104679
Luo, J., Wei, Q., & Yi, X. (2026). Government-firm vs. government-business connections and outward foreign direct investment in China. Journal of International Management, 32, Article 101328. https://doi.org/10.1 016/j.intman.2026.101328
Ma, R., Yan, B., & Yan, Y. (2026). Debt for jobs? The impact of industrial park infrastructure special debt on urban employment in China. Cities, 174, Article 107088. https://doi.org/10.1016/j.cities.2026.107088
Martinez, A. B. (2015). How good are US government forecasts of the federal debt? International Journal of Forecasting, 31, 312–324. https://doi.org/ 10.1016/j.ijforeca st.2014.08.014
Ping, W., Li, J., Liu, M., & Guo, Y. (2026). Local government debt risk in China: Measurement and interprovincial spillover effects. Research in International Business and Finance, 90, Article 103540. https://doi.org/10.10 16/j.ribaf.2026.103540
Qian, X., Liu, Z., Wu, Q., & Zeng, C. (2026). Major government customers and corporate court outcomes: Evidence from China. Journal of Corporate Finance, 98, Article 102966. https://doi.org/10.1016/j.jcorpfin.2026.102966
Schmid, L., Valaitis, V., & Villa, A. T. (2026). Government debt management and inflation with real and nominal bonds. Journal of Financial Economics, 182, Article 104293. https://doi.org/10.1016/j.jfineco.2026.104293
Shailer, G., & Wang, K. (2015). Government ownership and the cost of debt for Chinese listed corporations. Emerging Markets Review, 22, 1–17. https://doi.org/10.1016/j.eme mar.2014.11.002
Wang, F., Chen, X., & Yang, G. (2025). Fiscal expenditure responsibilities of public–private partnerships and corporate innovation investment—Evidence from prefecture-level cities in China. China Journal of Accounting Research, 18, Article 100416. https://doi.org/10.1016/j.cjar.2025.100416
Wang, Q., & Zhu, R. (2026). Corporate cost uniqueness and debt maturity structure: Perspective of new structural economics. Research in International Business and Finance, 90, Article 103534. https://doi.org/10.1016/j.ribaf.2026.103534
Xiong, W., & Ye, Z. (2026). Political tournaments, government outsourcing, and unproductive infrastructure: Evidence from China's highway projects. Cities, 174, Article 106981. https://doi.org/10.1016/j.cities.2026.106981
Xu, L., & Niu, Q. (2026). Promoting green innovation: The pivotal role of government environmental information disclosure. Journal of Innovation & Knowledge, 13, Article 100937. https://doi.org/10.1016/j.jik.2026.100937
Xu, S., Chen, Z., & Liu, S. (2026). Hindrance or facilitation? Environmental responsibility and green innovation in China's new energy firms under government environmental attention. Journal of Innovation & Knowledge, 17, Article 101046. https://doi.org/10.1016/j.jik. 2026.101046
Yang, M., Meng, Y., & Li, Y. (2026). Managerial integrity: The bridge to lower cost of debt. Research in International Business and Finance, 91, Article 103604. https://doi.org/10.1016/j.ribaf.2026.103604
Yuan, R., Liu, M., & Li, M. (2026). Government certification and cost of equity: Evidence from the specialization, refinement, differentiation, and innovation policy. Emerging Markets Review, 74, article 101500. https://doi.org/10.1016/j.ememar.2026.101500
Zhang, G., Lin, Q., & Chan, K. C. (2026). The effect of local government debt on corporate accounting conservatism. The British Accounting Review. Advance online publication. https://doi.org/10.1016/j.bar.2026.101953
Zhang, Y. (2025). Debt distribution and ESG performance: Evidence from Chinese listed companies. Research in International Business and Finance, 73, Article 102589. https://doi.org/10.1016/j.ribaf.2024.102589
Published
2026-11-10
How to Cite
Savitri, J. A., & Fuadah, L. L. (2026). Beyond Public Debt: Uncovering the Hidden Liabilities of Governments Through Public Sector Financial Reporting. International Journal of Education, Vocational and Social Science , 5(04), 5194-5218. https://doi.org/10.63922/ijevss.v5i04.7359
Contact Person +6282139474255
Email : ijevss@citakonsultindo.or.id / editor.ijevss@gmail.com
