Management Quality and State Bond Ratings: Exploring the Links between Public Management and Fiscal Outcomes

Abstract

How and when does management matter for government performance? Focusing on the quality of core management systems, this study proposes that one way management contributes to government effectiveness is by facilitating access to low-cost credit. However, whether well-managed systems have greater access to low-cost debt compared to poorly managed organizations depends in part on prevailing conditions in the external environment. The study tests these propositions in the context of state governments' general obligation bond ratings. Results from the pooled Tobit models show that states with higher-quality management systems are rewarded with higher bond ratings. However, the positive effects of management on bond ratings are attenuated when the economy deteriorates or political uncertainties increase.

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