Ordering Chaos: The Performance Consequences of Budgetary Changes

Abstract

Literature on punctuated equilibrium theory has aimed to explain the causes of policy punctuations. What remain unknown are the consequences of those punctuations (and other size changes) for organizations. Specifically, this study analyzes how budgetary changes affect organizational performance. While the connection between financial resources and organization outcomes has been examined before, the analyses here expand upon previous work by considering the full spectrum of budgetary changes from negative punctuations to positive punctuations. This topic is important given today’s fiscal uncertainty. For managers and bureaucrats, they are expected to stabilize organization outputs no matter what policy inputs are established in the organization. At times, inputs can be erratic and unstable—successful organizations can find a way to maintain performance despite these obstacles. In the context of school districts, this study examines the performance consequences (measured by annual changes in the statewide standardized test pass rate) of different size alterations in instructional expenditures. Results indicate that, generally, organizations are able to dampen the impact of negative financial changes and improve upon budgetary increases in the translation to outcomes.