According to official statistics, 20 percent of Uganda's total public expenditure was spent on education in the mid-1990s, most of it on primary education. One of the large public programs was a capitation grant to cover schools' nonwage expenditures. Using panel data from a unique survey of primary schools, we assess the extent to which the grant actually reached the intended end-user (schools). The survey data reveal that during 1991–1995, the schools, on average, received only 13 percent of the grants. Most schools received nothing. The bulk of the school grant was captured by local officials (and politicians). The data also reveal considerable variation in grants received across schools, suggesting that rather than being passive recipients of flows from the government, schools use their bargaining power to secure greater shares of funding. We find that schools in better-off communities managed to claim a higher share of their entitlements. As a result, actual education spending, in contrast to budget allocations, is regressive. Similar surveys in other African countries confirm that Uganda is not a special case.

Local Capture: Evidence from a Central Government Transfer Program in Uganda

We develop a model of internal governance where the self-serving actions of top management are limited by the potential reaction of subordinates. Internal governance can mitigate agency problems and ensure that firms have substantial value, even with little or no external governance by investors. External governance, even if crude and uninformed, can complement internal governance and improve efficiency. This leads to a theory of investment and dividend policy, where dividends are paid by self-interested CEOs to maintain a balance between internal and external control. Our paper can explain why partnerships work well even if control rights are concentrated at the top, why a public firm’s shares have value even when shareholders have limited power, and when structuring an entity as a publicly-held firm is better than structuring it as a partnership.

https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=1350580

The Internal Governance of Firms

Mindfulness, reliability, pre-emptive conflict handling, customer orientation and outcomes in Malaysia's healthcare sector

We apply a normalization of deviance model to understand the prevalence of the illegal practice of wage arrears, the delayed payment of wages, in Russia during the 1990s. Viewing organizational dev...

The Normalization of Deviant Organizational Practices: Wage Arrears in Russia, 1991–98

This paper develops a theoretical account of the reconstruction of workforce downsizing as a shareholder-value strategy since the 1980s. This account has two components. First, building on resource-dependence theory, I suggest that growing corporate dependence on institutional investors makes firms susceptible to their demand for greater returns, especially when these institutional investors are blockholders and resistant to counter-pressure from managers. Second, building on Fligstein’s theory of conceptions of control, I suggest that the rise of shareholder value reorients managerial behavior, by changing the decision context in a way that induces managers to maximize shareholder value. Crucial to constructing this new decision context are a set of agency-theory prescriptions for reforming corporate governance. My analysis of downsizing announcements, drawing on a sample of 714 US firms between 1981 and 2006, shows that both the pressure from institutional investors and the new decision context encourage firms to downsize more frequently. By demonstrating how both pressure from investors and changed managerial decision contexts have contributed to the prevalence of workforce downsizing, this paper makes a strong case for the financialization of the American corporation, and contributes to the sociological research on growing job insecurity and income inequality over the past three decades.

/pdf/shareholder-value-and-workforce-downsizing-1981-2006-wvy6b399s3.pdf

Shareholder Value and Workforce Downsizing, 1981–2006

Exit, Voice, and Loyalty: Response to Decline in Firms, Organizations, and States. By Albert O. Hirschman, (Cambridge: Harvard University Press, 1970. Pp. 162. $6.95.)

Roger A. Hanson

Papers

Exit, Voice, and Loyalty: Response to Decline in Firms, Organizations, and States. By Albert O. Hirschman, (Cambridge: Harvard University Press, 1970. Pp. 162. $6.95.)