|dc.description.abstract||There are three primary goals of financial management: to help a firm weather environmental turbulence, to allow a firm to grow, and to make safe revenue choices to keep a firm operational. What is often disregarded in this discussion is organizational context. In this dissertation, I argue that we cannot manage finances in all organizations the same way.
Organizational context matters for money management. Specifically, by organizational context I mean if a firm is a public, for-profit, or nonprofit entity. Organizational context shapes the winners and losers in resource distribution and hence fundamentally alters key expectations from various financial management tools and techniques. To demonstrate this, I address three questions related to each aspect of financial management. First, can fiscal slack help buffer budget shocks in public organizations? Second, does financial performance motivate risk taking in nonprofit, for innovation and growth? Finally, can revenue sourcing strategies affect key outcomes in decentralized public organizations?
I use twenty years of data from over a thousand public school districts in Texas. I use ordinary least squares regression models with year fixed effects. First, I empirically demonstrate that fiscal slack alone cannot fully counterbalance the negative impact of 10 percent or greater budget shocks on aggregate district standardized test performance. However, districts with approximately 31.53 percent fund balance (unabsorbed fiscal slack) can reduce the negative impact of budget shocks more effectively than districts with minimum, or just 0.05 percent, fund balance. But the distinction of slack as an effective buffer in for-profits, in much less pronounced in public firms.
Second, I offer a theoretical discussion of how an increase in financial performance may induce nonprofits to take more risks. This is in sharp contrast to their for-profit counterparts. Decline in financial performance is the key motivation for for-profit firms to innovate and take risks. But given the nondistribution constraint and the lack of profit motivation, when nonprofits are financially secure they would be induced to take more risk.
Finally, I empirically investigate achievement gap based on income, a key outcome, in the highly decentralized US K-12 education system. Decentralization is expected to offer welfare enhancing opportunities, by allowing school policies to be tailored to small homogeneous student groups. I find that when more revenue is generated locally, more administrative decentralization can increase income-based achievement gap. Revenue source is less important in private organizations that actively seek to diversify revenue bases.
These three separate conclusions together substantiate the key thesis that organizational context fundamentally alters outcomes and expectations from various money management choices in firms.||en