Panel Paper: Budgetary Changes and Organizational Performance: Evidence from State Transportation Agencies

Saturday, November 10, 2018
Jackson - Mezz Level (Marriott Wardman Park)

*Names in bold indicate Presenter

Can Chen, Florida International University and Carla Flink, American University

In the literature of punctuated-equilibrium theory, there is a large volume of empirical research identifying the causes of policy punctuations. However, little is known about the consequences of those punctuations for public organizations. In addition, theoretical and empirical studies on the effects of policy changes on organizational outcomes are especially rare. Do policy punctuations result in outcome punctuations? Do incremental policy changes only yield incremental changes in organizational performance? This study aims at linking policy punctuations to the performance of public organizations and empirically explores how organizations transfer budgetary inputs to performance outcomes.

To achieve this purpose, we draw on resource dependence theory and punctuated-equilibrium theory to set up the theoretical predictions of the study. Then, we empirically test the predictions about the effects of budgetary changes on the performance changes of public organizations using data from state highway transportation agencies. The dependent variable is measured by two core performance indicators of state highway transportation agencies: state-administered highway quality and state-owned bridge conditions. The key independent variable of budgetary changes is operationalized as the annual percentage changes in state-administered maintenance spending per capita and per mile. This expenditure represents one of the core functions of state highway transportation agencies—maintain roads and bridges in good condition. Consistent with previous theoretical and empirical work on punctuated-equilibrium theory (e.g., Flink 2017), the variable of budgetary changes is classified into five categories based on the size of changes—large negative and positive, medium negative and positive, and small (incremental) changes. Our panel data consists of 50 state Departments of Transportation (DOTs) from 2000 to 2014. For the empirical analysis, in the first stage, the test of normality and kurtosis analysis will be utilized to check the shapes of the distributions of highway budgetary and performance changes. The second stage will tabulate the distributions of annual highway performance changes by categories of budgetary changes. In the final stage, we will use a dynamic panel model to predict the marginal effects of highway budgetary changes on the performance changes of state highway transportation agencies, while accounting for the potential econometric issue of endogeneity between changes in organizational resource and performance.

Our expected findings will significantly contribute to the literature on the performance consequence of budgetary changes in three important ways. First, the study expands the theoretical understanding of the determinants of organizational outcomes. Second, it explores when and how the magnitude of budgetary changes matters for the performance of public organizations. Third, it offers practical implications for public managers to appropriately direct funds to improve organizational performance.