Improving the performance of public organizations: Financial resources and the conditioning effect of clientele context

Abstract

AbstractThe link between expenditures and organizational performance is central to our understanding of public sector governance. Despite various empirical and theoretical accounts of how organizations buffer or exploit financial situations to stabilize outcomes, the literature remains split on how money influences organizational performance. This study sheds new light on this puzzle by developing an analysis of clientele contexts, and how such contexts intervene in the relationship between expenditure and performance. We analyse competing hypotheses for the heterogeneous effects of clientele contexts on funding and performance—one in which these contexts strengthen the relationship, and one in which they weaken the relationship. Through district‐level empirical analyses of public education data over a 17‐year period, we find that instructional spending changes influence student performance, and that the impact is conditioned by the socioeconomic mix of students. Organizations that serve low‐income communities see the greatest performance gains from increased monetary resources.