Purpose This study empirically evaluates the conceptual model proposed by Jorge (2007) to explain the persistent divergence of public sector accounting (PSA) systems. Leveraging Germany's federal diversity, we examine whether the determinants identified by Jorge systematically explain variation in PSA standards and, furthermore, whether such divergence has behavioral consequences. Design/methodology/approach The analysis leverages the unique German setting in which each federal state autonomously regulates the accounting framework for municipal-owned companies (MOCs). Using a hand-collected dataset covering 15 state-level MOC frameworks from 1998 to 2024, we benchmark each framework against German GAAP. Multivariate regressions are then used to assess how Jorge's model explains different forms of divergence from German GAAP. In a second, exploratory empirical step, we examine whether accounting proximity affects earnings management (EM) using indicators developed by Leuz et al. (2003). Findings The results partially support Jorge's (2007) model. The findings indicate that financing structures, audit governance, and budgeting systems are key drivers of convergence toward higher-quality, business-oriented PSA. In contrast, historical and intergovernmental factors appear to play only a minor role. Overall, the findings highlight the importance of purpose- and user-oriented determinants in shaping PSA design. The exploratory analysis shows that accounting proximity is only partially associated with EM behavior, which seems driven by economic fundamentals, such as financing and profitability. Originality/value This study provides an empirical test of Jorge's conceptual model within a one-country setting by leveraging the regulatory discretion of the German setting. Using a longitudinal, hand-collected dataset from 15 state-level PSA frameworks.
Heise et al. (Sat,) studied this question.