Strategic corporate governance factors for municipally owned companies: an empirical analysis from a municipal perspective

Abstract

Empirical research on municipally owned companies is still an under-researched field. In particular, there is a lack of sound empirical success factor-related studies that take into account the municipal mission of creating public value, as well as future-oriented strategic measures by which municipally owned companies can be directed from a municipal perspective. Therefore, this study examines strategic success factors that have an impact on the perceived success of municipally owned companies by investigating the responses from 271 qualified key informants using structural equation modelling. The analysis of the responses indicates that three factors (shared vision, strategic coordination and goal clarity) show a positive significant impact on the perceived success of municipally owned companies. In summary, the study provides insights to academics and public officials, and contributes to address the prevailing gap of empirical knowledge in the field.

Points for practitioners

The findings suggest that creating a shared vision and building a common understanding with their municipally owned companies concerning their goals, roles and duties is an important task for municipalities. Furthermore, the results indicate that municipalities that take an active part in their ownership role are more likely to experience enhanced municipally owned company success than others that instead rely on contractual agreements. Thus, creating a joint understanding of the intended strategy and operations seems more promising than creating excessive bureaucratic burdens.

Keywords

municipal level municipally owned companies primary data questionnaire state-owned enterprises structural equation modelling

Introduction

Municipally owned companies (MOCs) have gained great societal significance since an increasing number of localities use autonomous organizations, in which they exercise ownership, to produce or deliver public services outside administrative structures (Papenfuß et al., 2019; Voorn et al., 2017).¹ The associated provision of public services via third parties has caused a monumental change in the organization of the public sector (Borisova and Cowan, 2014). While this situation requires new skills and competences for the relevant public authorities regarding the directing and controlling of these companies, empirical knowledge on this form of public service provision is scarce (Gnan et al., 2013; Peng et al., 2016; Voorn et al., 2017). Against the topic’s academic and practical significance, several authors call for further research in this field (Florio, 2014; Grossi et al., 2015).

Besides a general need for research on MOCs, some researchers highlight the necessity to improve existing knowledge on aspects such as ‘strategy and corporate governance, [which] need to be better understood under such varying conditions of state ownership and control’ (Bruton et al., 2015: 93). Although these factors are expected to have a significant influence on firm performance (Gnan et al., 2013; Sam, 2008), our empirical understanding regarding the antecedents of the effectiveness and efficiency of MOCs remains limited (Voorn et al., 2017). In particular, which specific corporate governance mechanisms municipalities can use to enhance MOC success is still an open issue (Daiser et al., 2017).

In light of these shortcomings, this study focuses on mechanisms that can be used by the municipality to address strategic matters that have an impact on the performance of its MOCs. In other words, we examine which strategic corporate governance factors drive MOC success from a municipal perspective. To answer this question, we develop a structural model, which is tested empirically by analysing the data from 271 German municipalities.

The study provides insights to academics and public officials that are responsible for the corporate governance of MOCs, and contributes to address the prevailing gap of empirical knowledge in this field. The article is structured as follows. In the upcoming section, we discuss the theoretical background of the study and derive the hypotheses from our findings in the literature and the semi-structured expert interviews. Afterwards, we present the method and measures for testing these hypotheses and outline important issues concerning the reliability and validity of the data. Next, we show the empirical results of the analysis and close the study with the discussion and conclusion section.

Theoretical background and hypotheses

This study takes a principal agency and public value theory perspective. The agency theory is a dominant theory in corporate governance theorizing. Its key issues are the relationship between a principal and an agent, who is engaged to perform a service on the principal’s behalf, and the associated separation of ownership and control. Agency theory argues that the agent will not always act in the best interest of the principal. For this reason, the principal has to take measures to protect their interests (Jensen and Meckling, 1976; Shleifer and Vishny, 1997). From an agency perspective, municipalities that provide public services through MOCs find themselves in a pressing situation: they have to exercise their ownership without exerting undue political interference, handle the conflicting interests of principal–agent relations on multiple levels and achieve multiple goals since the mission of the public sector entails more than just making profits (Calabrò and Torchia, 2011; Grossi and Thomasson, 2015; Whincop, 2005). Here, corporate governance comes into play.

At its core, corporate governance is about resolving such conflicts by systematically applying specific mechanisms that harmonize the interests of the agent and the principal, and reduce information asymmetries between them (Aharoni, 1981; Shleifer and Vishny, 1997). Furthermore, the corporate governance of publicly owned companies, which can be defined as ‘the rules and procedures by which [public] corporations are directed and controlled’ (Grossi and Reichard, 2008: 608), is considered an effective instrument to enhance their performance, transparency and accountability (Gnan et al., 2013; He et al., 2015). Although one can find varying definitions and perceptions of this concept in the literature, there are common features that are usually attributed to a corporate governance system. The rules and procedures that make up this system include the legal form of the company, its ownership and the applied management and control mechanisms (Grossi and Reichard, 2008), such as contracts, compensation schemes, management autonomy, reporting, strategic monitoring, target setting and so on.

Public value theory argues that public value creation, which can be described as the public sector’s contribution to the economic, social and environmental well-being of a society, is the key objective of the public sector (Moore, 1995). According to this theory, public value creation is the core value proposition of public organizations, which they can achieve through an efficient and effective provision of high-quality services while simultaneously enhancing trust towards the respective public organizations. By considering more than just the financial benefits and cost of public service provision, public value theory moves beyond traditional and new public management approaches, and provides a new perspective on the objectives and performance of public organizations (Bryson et al., 2014).

This study examines specific strategic corporate governance factors and their impact on the perceived success of MOCs from a municipal perspective. Strategic corporate governance factors are measures that must be planned and conducted well to ensure lasting success for an organization. To identify relevant strategic factors that can be used by municipalities to safeguard their interests towards their MOCs, we consulted related literature and conducted nine semi-structured interviews with researchers and 18 with public experts. The first relevant strategic corporate governance factor that we derived from this approach concerns the specificity of the contracts between the MOCs and the municipality.

From an agency perspective, contracts are a fundamental mechanism to reduce the agency problem since they allow the principal to set out clear provisions and arrangements concerning the services that the agent shall provide on behalf of the principal (Argento et al., 2010; Jensen and Meckling, 1976). The written fixation of relevant norms, rules, accountabilities and responsibilities allows to ex ante formalize ex-post behaviour, which reduces future potential for conflict between the parties (Ouchi, 1979; Poppo and Zenger, 2002). Contracts are thus seen as an effective instrument to coordinate the relationship between the municipality and the MOC (Argento et al., 2010).

Given that the German Limited Liabilities Companies Act (GmbHG) provides a clear framework for the legal and contractual structure regarding the MOCs under consideration in this study, we are particularly interested in the extent to which contracts incorporate the obligations concerning the relationship between the municipality and the associated impact on the perceived success of MOCs. Based on this understanding, we define the construct of contract specificity as the perceived extent to which the municipality formalizes the rights and obligations of its MOCs (cf. Cannon and Perreault, 1999; Cannon et al., 2000; Lui et al., 2009). Since specific contracts should reduce the agency problem, we hypothesize:

Hypothesis 1: Increases in the specificity of contracts will lead to higher perceived MOC success.

The next strategic corporate governance factor that has come up in the literature analysis and was confirmed during the expert interviews is shared vision. Shared vision refers to the embodiment of the collective goals and aspirations of different parties. By improving mutual understanding and trust between the parties, shared vision is considered an important pillar for long-term and loyal business relationships (Tsai and Ghoshal, 1998). We understand the construct of shared vision in this study as the perceived extent to which the goals and aspirations of the municipality and the MOCs overlap (cf. Morgan and Hunt, 1994; Nohria and Ghoshal, 1994; Tsai and Ghoshal, 1998). From an agency point of view, shared vision reduces opportunistic behaviour and makes it more likely that the agent will use his specific knowledge and resources to pursue the interests of the principal (Ensminger, 2001; Nohria and Ghoshal, 1994). Hence, we hypothesize:

Hypothesis 2: Increases in the overlap of shared vision will lead to higher perceived MOC success.

According to the literature and the statements of the interview partners, strategic coordination is a further important factor. The decentralization of services creates organizational barriers and leads to additional coordination effort (Goerzen and Beamish, 2005). Strategic coordination, which refers to systematically coordinating the upcoming and future activities, goals and routines of organizations (Mohr and Spekman, 1994; Schilke and Goerzen, 2010), is seen as an effective mechanism to counteract such issues since it improves inter-organizational coordination and exchange (Sarkar et al., 2009), and enhances the conditions for legitimate business transactions among the parties (cf. Kumar and Nti, 1998). Transferred to a MOC context, strategic coordination encompasses the future goals and activities that the municipality expects from the MOCs. Based on this understanding, we define the construct of goal clarity in this study as the perceived extent to which the determined goals are clear to the people responsible (Lee et al., 1991). Since effective strategic coordination is assumed to have a positive impact on performance (Schilke and Goerzen, 2010) and to strengthen inter-organizational relationships (Goerzen and Beamish, 2005), we formulate the following hypothesis:

Hypothesis 3: Increases in the extent of strategic coordination will lead to higher perceived MOC success.

Finally, we could derive goal clarity as a further relevant factor. Clear goals are a key aspect in determining and allocating targets, activities and responsibilities (Mohr and Spekman, 1994). They are seen as an effective governance mechanism since clear goals specify a particular result or performance level that has to be achieved within a given period. Following this understanding, they create a constructive dissatisfaction if there is a discrepancy between the determined and the current performance (Latham and Locke, 2006). Therefore, clear goals make it more likely that the agent will increase their efforts to achieve the determined goal (Latham and Locke, 2006). Based on this reasoning, we formulate the following hypothesis:

Hypothesis 4: Increases in the extent of goal clarity will lead to higher perceived MOC success.

Perceived MOC success refers to the perceived accomplishment of the aims and/or purposes that the municipality pursues with its companies. Considering the measurement of perceived MOC success, we argue that this factor should take into account the pillars of the public value concept, which is a well-established concept in public management. The public value concept principally states that public value creation is based on three fundamental pillars: (1) the efficient provision of public services; (2) the effective provision of public services; and (3) trust towards the public service provider (Moore, 1995; Try and Radnor, 2007). Against this, we use three factors that shall indicate the public value creation of MOCs and thus represent the perceived success of the MOCs from a municipal public value perspective: the perceived efficiency of the MOCs; the perceived effectiveness of the MOCs; and perceived trust towards the MOCs.

The efficiency of the MOCs reflects the service pillar of the public value concept, which aims at efficient public service provision. Efficiency is generally described as outputs divided by inputs, meaning the ratio of outcomes to the resources required to achieve them. Following the principle of economic efficiency, the municipality should pursue a high efficiency ratio to create public value. Based on this understanding, we define the construct efficiency of the MOCs as the perceived degree of efficiency (in terms of the ratio between outcomes and resources deployed) with which the MOCs provide their services.

The effectiveness of the MOCs represents the outcome pillar of the public value concept. In contrast to efficiency, effectiveness focuses not on an output–input ratio, but on the ratio between planned and actual output. Thus, effectiveness describes the extent to which the municipality achieves its public service provision targets by using MOCs. Concerning the construct of effectiveness, we are particularly interested in the extent to which the respondents evaluate the municipality’s public service provision target achievement through its MOCs. Therefore, we define the construct effectiveness of the MOCs as the perceived degree of public service provision target achievement (cf. Klijn et al., 2013; Robson et al., 2008).

Trust towards the MOCs reflects the trust pillar of the public value concept. It complements the constructs of the efficiency and effectiveness of the MOCs within the nomological network to measure perceived MOC success in this study. Trust is a significant concept in corporate governance research since it has a positive effect on the relationship between two or more parties and is regarded as a vital component for long-term cooperation (Morgan and Hunt, 1994), as well as for directing and controlling inter-organizational exchange relationships (Alvarez et al., 2003). Following the understanding of trust of Morgan and Hunt (1994), we conceptualize trust towards the MOCs as existing when the municipality has confidence in the MOCs’ reliability and integrity. It is defined in this study as the perceived degree of trust that the respondents feel towards the MOCs (cf. Andaleeb, 1996).

In addition to perceived MOC success, we add an additional measure that shall provide further insights into the relationship between public value creation and the financial performance of the MOCs. Although obtaining profits is not a primary target of public service provision (Aharoni, 1981; Bruton et al., 2015), we argue that a reasonable economic performance of the MOCs is a prerequisite for sustainable economic public management. Since some MOCs are doomed to run losses, typical financial or operating performance indicators are not suitable to reflect the financial performance of MOCs. Against this background, we measure the perceived financial target achievement of the MOCs, which we define as the perceived degree of target attainment concerning the previously determined financial performance targets by the municipality. Following the assumption that good corporate governance increases enterprise performance, we formulate the following hypothesis:

Hypothesis 5: The higher the perceived MOC success, the higher the extent to which the MOCs will achieve their financial targets.

Figure 1 summarizes the constructs of this study and the associated hypotheses in the postulated research model.

Figure 1.

The postulated research model.

Method

We used structural equation modelling (SEM). This decision was based on four reasons (for the following, see Hair et al., 2014). First, the study requires the measurement of latent variables. SEM allows a simultaneous estimation of several latent variables while also considering error estimates. This enhances the validity and reliability of the results. Second, the evaluation of measurement errors, especially given the perception-oriented measurement approaches in the public administration context, is important for assessing the results. Third, SEM provides various indices of model fit that allow evaluating goodness of fit for the entire model. Finally, SEM is an established, reliable procedure for data analysis concerning the context of the study.

Sample and data collection

The nature of the hypotheses requires gathering data from experienced key informants at the municipal level. Since there are no official statistics that provide information about which German municipalities own MOCs, we derived the study sample from the municipal directory of the Federal Statistical Office, which includes all politically independent municipalities in Germany. Based on the information from expert interviews and the sample criteria of previous investigations, we chose all municipalities with more than 5000 inhabitants since it is unlikely that smaller municipalities own MOCs that fit the scope of this study. Next, we scrutinized websites to identify one qualified key informant per municipality, who were either the municipalities’ mayor, head of treasury, head of finance or head of portfolio management. This approach allowed us to identify a potential key informant in 2622 municipalities.

We contacted these potential respondents with an email, in which we kindly requested that they answer the questionnaire if their municipality owns autonomous companies in the legal form of a limited liability company under private law, in which they exercise ownership, to provide public services outside their administrative structures. By applying this specification, we ensured that the key informants only considered companies that share similar characteristics (e.g. legal form, organizational structure, ownership, contractual agreements). A four-wave mailing approach via email led to a total of 271 usable responses.

Since there is no information available on how many municipalities actually run MOCs, calculating a reliable response rate is not feasible. Therefore, we assessed the return from a representative and methodological perspective. Since the sample is balanced with the overall population and greater than 200, which is considered statistically robust for SEM (Chin and Newsted, 1999), it is considered meaningful – in particular, since we were able to obtain a large number of responses from highly qualified key informants.

To assess the appropriateness of the key informants, the survey items also asked the respondents about their age and hierarchical position, as well as their tenure concerning the corporate governance of SOEs. Approximately 85% of the participants had an executive function and possessed more than five years of experience in directing and controlling SOEs. These figures suggest that the key informants were qualified and well informed, fulfilling the two main aspects for key informant selection (Bagozzi et al., 1991). The sample characteristics are summarized in Table 1.

Table 1.

Sample composition.

Characteristics	%	Characteristics	%
Gender		Tenure/experience
Male	71.5%	>10 years	67.0%
Female	28.5%	6–10 years	18.5%
Age of the respondents		1–5 years	13.0%
>64	1.1%	<1 year	1.5%
60–64	13.7%	Size of the municipality
55–59	20.4%	>500,000	4.4%
50–54	24.4%	200,000–500,000	2.2%
45–49	13.0%	100,000–199,999	7.8%
40–44	12.2%	50,000–99,999	11.5%
35–39	7.8%	20,000–49,999	35.2%
30–34	5.2%	10,000–19,999	24.1%
25–29	2.2%	5000–9999	14.8%

Bias

Since the evaluation of biases is an important aspect for analysing the quality of the data, we considered the existence of potential biases before, during and after the data collection, as recommended by the methodological literature (Podsakoff et al., 2003, 2012). Given the study design, we focused on two potential biases: non-response bias and common method bias (CMB). We evaluated the presence of non-response bias by comparing early and late respondents. The results of the Kruskal-Wallis Test did not indicate significant differences between these two groups, which suggests that non-response bias is not a significant problem (Armstrong and Overton, 1977).

While it is common in social science research to use key informants as data sources, this approach may cause CMB (Podsakoff et al., 2003). Although CMB is primarily a problem when acquiring data on ability, motivational and task factors (Podsakoff et al., 2012), we closely followed the recommendations of the methodological literature to control for CMB (for the following, see Jakobsen and Jensen, 2015; MacKenzie and Podsakoff, 2012; Podsakoff et al., 2003). First, we already tried to control for CMB during the study and survey design (e.g. selecting qualified and motivated respondents, the sequence of factors, the formulation of items). To reduce evaluation apprehension, we informed the respondents about the anonymity of the survey and about the importance of responding honestly. After the data collection, we used the Harman single factor test and Guttman split half coefficient, which both showed that CMB is not likely to be a problem.

Finally, we also prepared a data triangulation to further evaluate the accuracy of the key informant data. For this purpose, we asked all 271 study participants whether there was a second person in their municipality who could serve as a qualified key informant within a data-triangulation setting. This led to 32 additional key informants. Based on the assessment of the inter-rater agreement, bivariate correlation and the intra-class correlation, the results of the triangulation also suggest that CMB is not significant (cf. Homburg et al., 2012).

Measures

Following the recommendations of DeVellis (2017), the measurement development included a comprehensive literature analysis phase and eight expert interviews to refine the items used. In addition, we conducted an item-sorting test and a think-aloud test among 10 and five scholars, respectively (Anderson and Gerbing, 1991; Nielsen, 1994) to ensure the eligibility and comprehensibility of the survey items. Finally, we ran a pretest with 30 public administration experts to assess the feasibility and accuracy of the items used and the online survey instrument. For the operationalization of the constructs, we used measures from validated scales of prior studies, which were modified to reflect the context of the study (cf. DeVellis, 2017; Schilke and Cook, 2015; Tummers, 2016).

All response categories of the applied constructs are formulated as seven-point Likert scales. The respondents were asked to evaluate their level of agreement with a particular statement by indicating their degree of consent from 1 (not correct at all) to 7 (applies completely). Based on the decision criteria from Jarvis et al. (2003) and following the operationalization approaches of previous studies, all constructs are subject to a reflective measurement.

Empirical results

Before testing our hypotheses, we calculated the standardized factor loadings, Cronbach’s alpha, composite reliability and average variance extracted. The measurement items used to operationalize our theoretical constructs are summarized in Table 2.

Table 2.

Measurement items.

Construct	Items	SFL	α	CR	AVE
Contract specificity	We have specific, well-detailed agreements with the MOCs.	.91	.88	.88	.65
	We have precise formal agreements that detail the tasks of the MOCs.	.92
	We have precise formal agreements that detail the obligations of the MOCs.	.84
	We have specific, well-detailed agreements with the MOCs, which are clearly understood by us and the MOCs.	.62
Shared vision	The business practices of the MOCs are in line with our thinking.	.88	.99	.94	.80
	The organizational culture in the MOCs corresponds to the municipality’s philosophy.	.89
	The management style exactly meets the expectations of the municipality.	.91
	The MOCs share the goals and ambitions of the municipality.	.80
Strategic coordination	The mid-term strategic plans of the MOCs are well aligned with the municipality.	.85	.95	.95	.83
	The strategic activities of the MOCs are well coordinated by the municipality.	.92
	The strategic coordination of the MOCs takes place in a well-planned and systematic manner.	.62
	Overall, the municipality provides a sound strategic coordination of its MOCs.	.80
Goal clarity	The MOCs have clear and specific targets.	.85	.87	.88	.66
	The MOCs know exactly which goals they have to achieve.	.92
	The MOCs know exactly which tasks they have.	.62
	The MOCs know exactly which of their goals are most important and which are least important.	.80
Efficiency of the MOCs	The MOCs are productive.	.75	.94	.94	.72
	The MOCs work cost-efficiently.	.91
	The MOCs deploy their resources efficiently.	.87
	We are satisfied with the performance of our MOCs.	.87
	We are satisfied with the business efficiency of our MOCs.	.88
	From a cost–benefit perspective, using the MOCs is worth the effort.	.82
Effectiveness of the MOCs	The MOCs increase the effectiveness of our local administration.	.83	.88	.87	.64
	Using MOCs for public service provision can be described as an effective, impactful measure concerning our municipal activities.	.93
	The time and effort spent in developing, maintaining and controlling the MOCs has been worthwhile.	.78
	The relationship with our MOCs is characterized by a strong and harmonious relationship.	.67
Trust towards the MOCs	We have great confidence that the MOCs fulfil their duties.	.72	.95	.97	.85
	We have great confidence that the MOCs are frank and truthful with us.	.89
	We have great confidence that the MOCs make sure that our municipality is not damaged or harmed in this relationship.	.86
	We have great confidence that the MOCs take diligent care of the municipality’s requests.	.90
	We have great confidence that the MOCs are on our side.	.93
	We have great confidence that we can continue to rely on our MOCs.	.90
Financial target achievement of the MOCs	The MOCs achieve the planned earnings targets	.80	.93	.93	.77
	The financial performance of our MOCs is in line with our expectations.	.93
	The MOCs will also in the future achieve their financial targets.	.81
	We are satisfied with the financial success of our MOCs.	.95

Notes: SFL = standardized factor loading; α = Cronbach’s alpha; CR = composite reliability; AVE = average variance extracted.

Since all values exceed the recommended thresholds, which indicates adequate convergent validity and the reliability of the measures, we assessed discriminant validity in the next step. Following the recommendations of Fornell and Larcker (1981), we compared the square root of the AVE of each factor with the correlations of that factor with all other factors. Table 3 demonstrates that all AVE values exceed the respective correlations, indicating discriminant validity.

Table 3.

Assessing discriminant validity using the Fornell–Larcker criterion.

Construct		1	2	3	4	5	6	7	8
1	Contract specificity	.808
2	Shared vision	.482	.865
3	Strategic coordination	.466	.630	.934
4	Goal clarity	.501	.698	.678	.817
5	Efficiency of the MOCs	.356	.606	.450	.554	.854
6	Effectiveness of the MOCs	.408	.678	.570	.585	.743	.773
7	Trust towards the MOCs	.429	.764	.591	.603	.639	.765	.879
8	Financial target achievement	.296	.538	.435	.494	.776	.622	.593	.879

Notes: n = 271. Bold numbers on the diagonal = square root of the AVE. Numbers below the bold numbers on the diagonal = correlations.

To test the model, we used covariance-based SEM (IBM SPSS Amos 22). Since the skewness and kurtosis in the data were well below the cut-off criteria of 2 and 7, we applied the maximum likelihood estimation, which can be expected to provide reliable results in this case (Curran et al., 1996). Overall, the model shows a good model fit: χ²/df = 2.276 (criterion ≤3), CFI = .925 (criterion ≥.90), GFI^ = .963 (criterion ≥.90), AGFI^ = .957 (criterion ≥.90), TLI = .917 (criterion ≥.90), SRMR = .069 (criterion ≤.1) and RMSEA = .069 (criterion ≤.08). Figure 2 summarizes the results of the postulated research model.

Figure 2.

Results for the postulated research model.

With the exception of contract specificity, all postulated path relationships show a positive significant value. Given this result, Hypothesis 1 has to be rejected. The path coefficient of .571 points to a highly significant impact of shared vision on perceived MOC success, which provides support for Hypothesis 2. The positive significant path coefficient of .129 from strategic coordination to perceived MOC success is in line with Hypothesis 3. Hypotheses 4 is also supported since goal clarity (.175) shows a positive significant effect on perceived MOC success. Furthermore, the highly significant path coefficient of .756 points to a positive relationship between perceived MOC success and the financial target achievement of the MOCs.

Discussion and conclusions

The ultimate goal of this study is the development of a model that helps to explain which strategic corporate governance factors from a municipal perspective drive MOC success. For this purpose, we identified important strategic corporate governance factors from the literature and expert interviews. Based on the findings of previous studies, we developed five hypotheses, which we tested in an empirical survey.

The study contributes to the literature in several ways. Given the lack of empirical studies on strategic factors for the successful municipal corporate governance of MOCs, the study adds new insights into the strategic corporate governance of MOCs. Apart from that, the measurement of MOC success by referring to the public value concept is innovative and the empirical data and the confirmatory statistical approach suggest that the measurement scales used are valid. Against the empirical results, the proposed model can be considered a satisfactory approach.

In summary, we identified three factors (shared vision, strategic coordination and goal clarity) that have a positive significant impact on perceived MOC success. These findings are in line with previous findings in related studies and support the postulated hypotheses. However, the factor of contract specificity was not significant. The non-significant result of contract specificity may be attributed to the usually close relationships between municipalities and their MOCs, as well as a certain level of mutual dependency, which also makes them collaborate and cooperate on relational levels. However, this outcome may also result from an ambiguous relationship between the government and its MOCs. According to Rentsch and Finger (2015), there can be multiple relationships, which can change over time. From this point of view, there is more to this relationship than a simple principal–agent relationship since several actors can have an impact on the role of the MOC. Subsuming, the study outcome suggests pursuing further efforts to investigate the potentially ambiguous and dynamic nature of the relationship and to assess other theoretical perspectives that may replace or extend agency theory.

Another reason may result from the situation that the measurement variables of this study refer to a particular point in time and that not all situational parameters can be considered in the research model. Given the broad span of contemporary MOCs and their dynamic nature, additional studies should investigate this issue – in particular, longitudinal studies that take into account the potentially dynamic and changing character of the relationship.

A further interesting finding is the high positive path coefficient between shared vision and perceived MOC success. A shared vision creates the framework for a joint strategic focus and sets the conventional future direction of the MOCs. Since this factor has the highest impact on perceived MOC success, municipalities should focus on creating a shared vision with their MOCs. In this context, future research should investigate the differences between these factors to shed light on the reasons for this result. A study that examines this relationship from a different perspective (e.g. from a MOC perspective) seems helpful.

A further important finding is the high positive relationship (.756) between perceived MOC success and the financial target achievement of the MOCs. From a municipal perspective, the local authorities that showed a higher degree of perceived MOC success also had a higher degree of perceived MOC financial target achievement. Therefore, the empirical results underline the nomological validity of the relationship and thus support the theoretical framework.

Given the R² values of perceived MOC success (.665) and the financial target achievement of the MOCs (.572), the respective constructs explain 66.5% and 57.2% of the associated variance. Against the research context, these can be interpreted as rather high since it has to be assumed that there are – as usual in social sciences – more than the identified factors that have an impact on MOC success and the financial target achievement of the MOCs.

Taking into account the factors that showed a positive significant impact on perceived MOC success (shared vision, strategic coordination and goal clarity) and the factor of contract specificity, which did not meet statistical significance, public officials that are responsible for the corporate governance of MOCs should build a common understanding with the MOCs on their roles and duties, create a shared vision, and precisely depict the strategic goals. Thus, they should concentrate on taking an active role in creating a joint understanding of the intended strategy and the underlying goals, as well as in aligning the strategic activities of the MOCs with the strategy of the municipality, instead of creating excessive bureaucratic or contractual burdens.

Despite these findings, the study also has some limitations. These limitations, however, provide important avenues for further research. First, even though the reliability and validity checks of the data do not indicate the presence of non-response bias or CMB, these biases cannot be ruled out completely. In this context, replication studies that challenge the present findings seem helpful. Second, our conceptual arguments and empirical analyses only pertain to existing MOCs. Since it is likely that there are other factors that have an influence on perceived MOC success that already pop up before a MOC is founded, further research should extend the present study. In this context, in particular, the non-significant results of contract specificity should be challenged in future research endeavours.

Similarly, we must assume that there are further drivers that have an influence on MOC success. Here, the present study should be understood as basic work that needs to be complemented with additional insights. Furthermore, the results are limited to observations in Germany. Since cultural specifics may be relevant in this context, investigating the topic from a cross-country perspective or in different cultural settings seems to be of high value. Finally, it needs to be stated that the investigated model can only contribute partially to explaining specific behaviour and its impact on perceived MOC success since the data are built on individual perceptions that reflect the general understanding and experiences of the respondents. Comparing the specific corporate governance mechanisms of particular municipalities or investigating the examined relationships from a MOC perspective, as well as studies with an experimental design, seem to be fruitful avenues for future research.

Footnotes

Declaration of conflicting interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

Note

Peter Daiser holds the professorship for E-Government & Digital Transformation at NSI/HSVN in Hannover, Germany. His research focuses on business model innovation, corporate governance and digitalization.

Bernd W. Wirtz holds the Chair for Information and Communication Management at the German University of Administrative Sciences Speyer, Germany. He has published widely on issues pertaining to business models, electronic government, strategic management, media management and marketing.

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