Public sector contracting-out for unilateral benefit: analysing the financial condition of local government and public enterprise

This study examines local public enterprises as an enterprise-based contracting-out instrument and evaluates their financial consequences for parent local governments and the enterprises themselves. Using panel data from South Korean local governments and affiliated public enterprises, we assess whether changes in the number of enterprises are associated with financial condition on both sides. The results show asymmetric effects: enterprise proliferation is generally associated with improved parent government financial condition but deteriorating enterprise financial condition. This pattern suggests an organisational boundary shift through which fiscal and operational burdens are transferred to separately accounted entities. By conceptualising enterprise creation as a strategic organisational choice, the study extends research on corporatisation and alternative service delivery and shows how reforms framed around specialisation and managerial professionalism can redistribute fiscal burdens within the public sector.