AuthorWynen, Jan
  1. Introduction

    A well performing public sector is considered to be a prerequisite for the economic and democratic performance of countries. Recent public sector reforms have been attempted in individual countries to achieve a better performing public sector. As such, the organization of the public sector in OECD countries has been subject to some major trends and shifts during the last 20 years (Pollitt and Bouckaert, 2004, p. 95; Hesse and Toonen, 1997, p. 26; Halligan, 2002, pp. 20-50). New Public Management (NPM) is the best known example of these reforms and led to several changes of the public sector in many countries. NPM was a reaction to correct the irretrievable failures and moral bankruptcy of the 'old' public management (Hood, 1991; Keating, 1989). More in particular, NPM formed an answer to the lack of result and customer orientedness of public organizations that delivered services to the public or implemented policy (Verhoest et al., 2007).

    According to NPM doctrines public sector performance can be improved by importing concepts, tools and values from the private sector. Public sector organizations should be offered more managerial autonomy while being controlled by the government on the basis of results. By doing so public sector organizations are believed to be more likely to apply private-sector styles of management techniques, to be more customer-oriented and will be more likely accountable for results, leading to a higher efficiency and a better performing public sector organization.

    Therefore, one of the central arguments of NPM is that more managerial autonomy may enhance the use of private-sector style management techniques by public sector organizations only under the condition of result control. This argument is based on principal-agent theory and asserts that because of goal incongruence (or conflict) and information asymmetry between the agency and its political principals, there is a considerable risk of opportunistic behavior by the agency (Pratt and Zeckhauser, 1991). Opportunism can take the form of adverse selection, moral hazard, and, in policy settings, can lead to a subversive or deviant policy implementation by the agent (Waterman and Meier, 1998). Following this line of reasoning, public managers of autonomous public sector organizations will have no incentives to use management techniques within their own organizations. On the contrary, management techniques may enhance the information for the political principal about potential shirking or deviant behavior of the agency.

    The concept of management techniques is however very heterogeneous, and captures a large variety of techniques. Sets of management techniques are frequently referred to as management systems or management capacity. Based upon literature (Pollitt, 1995; Ingraham et al., 2003; Flynn, 2002; Verhoest et al., 2010, pp. 50-73) four management subsystems can be distinguished: financial management, performance management, human resource management, and quality management. For each of these subsystems a number of techniques are proclaimed as good practice by NPM literature (Naschold, 1989; Pollitt, 1995). In this article we focus on financial management. Whereby, following Verhoest et al. (2010, p. 62), internal result-based allocation of resources to organizational units and the development of a cost-calculation system are considered to be representative for the use of financial management techniques within public sector organizations.

    Using multi-country data this article studies to what extent result control affects the use of financial management techniques. However, the paper also has a methodological goal, more precisely to make public sector researchers aware of the underlying assumptions of ordered models. Indeed, most studies rely on Likert-type data, making ordered and multinomial models increasingly popular. This paper will show that it is useful to subject a regression analysis to some additional scrutiny because a misspecified model may lead to erroneous inferences.

    The remainder of this paper is organized as follows: a theoretical model is developed in section 2 while in section 3 the data is described and descriptive statistics are provided. The methodological approach, discussion of the model and main findings are discussed in section 4, which is followed by some concluding remarks.

  2. Using financial management techniques: a principal-agent approach

    The relationship between the public sector organization and the oversight government is a typical example of a principal-agent relationship, whereby the public sector organization acts as the agent of their political and administrative principals. As such the agent, or in this case the public sector organization, enjoys some degree of managerial autonomy. This kind of autonomy can be defined as the level of decision making competencies (discretion) an organization has vis-a-vis superior levels, bodies and actors (Verhoest et al., 2004). Granting a public sector organization more managerial autonomy involves shifting decision making competencies from external actors (i.e. parent ministries, ministers) to the organization itself by delegation or devolution. Principal-agent theory emphasizes that the agent may use his autonomy to behave opportunistically (Jensen and Meckling, 1976). Therefore public sector organizations are also subject to various degrees of result control. Result control is referred to in this article as the extent to which the CEO is accountable for results and whether or not this accountability is linked to sanctions or rewards. Whereas managerial autonomy refers to the extent that public sector organizations have discretion on the choice and use of the inputs (resources) they use, result control refers to the mechanisms used by the political and administrative principals to control which outputs/results the public sector organization produces. According to Bouckaert (1998) result control is believed to temper opportunistic behavior by the public agency and to enhance its performance in several ways. First, the information asymmetry between the government and the public agency as to the performance of the latter is lessened by the use of information revealing instruments. Second, the goals of both parties are aligned more closely because clear objectives and targets are set and negotiated. Third, result control instruments like performance contracts may set priorities among the objectives of the different involved ministers, reducing the 'multiple principals' problem' (Bouckaert, 1998). Hence, the NPM-doctrine, which propagates the delegation of task to autonomous agencies and managerial autonomy, stresses the need for a strong result control by the ministers and parent departments of such agencies. Agencies should thus be given clear objectives by ministers and their achievement should be monitored, evaluated and sanctioned in case of mal-performance (Bevan and Hood, 2004; Verhoest et al., 2012). Public agencies thus have to accept a rigid result control system, which includes performance indicators and performance monitoring and assessment in order to ensure that the agency uses its discretion to pursue the achievement of the objectives of its principal (Christensen and Laegreid, 2004, p. 102). Following Verhoest et al. (2010, pp. 50-55) we expect that agencies which are controlled to a large extent ex post for their results may be forced, or induced, to use management techniques when this is assumed to be beneficial for their overall performance. The use of financial management techniques can be regarded as some kind of monitoring, bonding. Since financial management techniques might thus be helpful for the oversight authorities to control the organization's activities, we believe these techniques to be used to a larger extent in organizations with a high level of result control compared to organizations with lower levels of result control. Although scarcely studied, the independent influence of external result control of agencies is consequently considered to have a positive influence on the use of financial management techniques within agencies.

    An element in the principal-agent relation, as described above, is that the agent receives sufficient autonomy in order to be able to implement the principals' demands in an efficient, flexible and specialized way. Having autonomy or decision making competences in managerial affairs may thus be a facilitator, enabler or inducement of using management techniques (Laegreid et al., 2008; Christensen and Laegreid, 2007). By applying modern management techniques, agencies hope to increase overall performance in response to the demands of result control. This argument is also central to NPM doctrines, claiming that both managerial autonomy and result control are needed in order to stimulate the use of innovative management techniques. Managerial autonomy combined with result control provides public managers with both the possibility and the incentive to introduce these kinds of management practices. We thus expect that not only result control has a positive influence on the use of financial management systems, but that the interaction of management autonomy and result control has an equally positive effect on the use of financial management techniques. This relationship is visually presented in Figure 1.

  3. Data source, variables and descriptive statistics

    We focus on a specific type of public sector organizations, which we refer to as 'public sector agency'. Following Pollitt and Bouckaert (2004) and Verhoest et al. (2010) we focus on public agencies with the following features: (1) they are public law bodies, (2) they are structurally disaggregated from other organizations and core ministries, (3) they have some capacity for autonomous decision-making with regard to management or policy, (4) they are formally under some control of ministers and ministries, (5) they have some...

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