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An Examination of the Effects of Budgetary Control on Operational and Bond Market Performance: Evidence from School Districts
Carolyn M. Callahan, University of Arkansas - Fayetteville
Tammy R. Waymire, University of Arkansas - Fayetteville
ABSTRACT. We examine the effects of budgetary control on technical efficiency for public school districts in the state of Arkansas. This unique setting allows us to link performance to a market metric, the bond yield premium, which corresponds to the district’s cost of debt. First, we regress efficiency scores obtained from data envelop analysis (DEA), on budget-to-actual variances, which proxy for budgetary control. Secondly, we regress bond yield premiums on efficiency scores. While we find that budgetary control is directly related to efficiency, we do not find that efficiency is inversely related to bond yield premium as expected. Our study has implications for the design and implementation of budgetary control systems, and the results suggest that the bond market may not accurately impound available operational performance information for the public sector.
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