Does the Average Payment Period Play a Relevant Role in Explaining the Portuguese Municipalities’ Financial Distress?

The average payment period (APP) is an important measure to monitor public sector liquidity and commercial debt sustainability. In the European Union, relevance of APP as indicator mitigate those concerns was settled by issuance a Directive on this topic. Then, considering likely relationship between financial distress (FD), paper aims assess if current historical plays relevant role in explaining data for 308 Portuguese municipalities’ FD. Regression analysis, including panel simple linear regression models, used 2011 2019 (the last year available APP). findings show that number municipalities exceed limit has been reducing. Some them comply with 30 days threshold being, nonetheless, situation subject recovery mechanisms. By levels, identify significantly predicts FD entities do not threshold. size, seems be better explained within smaller entities. Finally, robustness test further analyses performed indicate macroeconomic factors predicting using explanatory variable. This contributes previous studies condition, namely analysis municipalities. As novelty, study considers new proxy municipal analysis.