Constrained or creative? Changes in financial condition and entrepreneurial orientation in public organizations

Abstract

Public managers and organizations are often encouraged to take a proactive role in finding solutions to the challenges that face their communities. These challenges require meeting increasingly high expectations for public service provision with ever reducing resources. This research investigates the relationship between change in resource constraints—as measured by longer and shorter term financial condition—and the entrepreneurial orientation of US local governments. Theoretically, it remains unclear whether resource constraints foster or impede entrepreneurial actions (i.e., risk taking, proactivity, and innovation) in public organizations. While entrepreneurial actions may be related to increased organizational financial capacity, a decline in an organization's financial condition might motivate proactivity, innovation, and risk taking as problem‐solving mechanisms and a means to continue service provision. We explore this relationship using two sources of data: a 2012 national survey of managers in 500 cities and financial data from Comprehensive Annual Financial Reports. Our findings suggest that resource constraints are associated with increased entrepreneurial activity in US local governments.