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Purpose  The aim of this paper is to explore whether and how external, political, financial and governance factors influence capital expenditure deviations in the Swedish municipal water and sewerage sector and to capture the consequences of municipal organisational fragmentation.    Design/methodology/approach  Panel data analysis of 238 municipalities and 1,190 observations of capital expenditure deviations over five years (2013–2017).    Findings  Apart from a low overall on average execution rate of 69%, the Swedish municipal water and sewerage sector seems generally sensitive to external stakeholder pressure for budget compliance, but not to the political power situation. Further, political signalling incentives generally do not influence capital expenditure deviations in the contexts of municipal corporations and cooperations, which supports the idea that these governance forms insulate the organisation from general stakeholder pressure and political control.    Practical implications  The practical implication is that large and constant capital expenditure deviations call for change in regulation and governance of the municipal sector. However, in countries such as Sweden, where externalising services to municipal corporations and cooperations is significant, this discussion needs to address the consolidated level of the municipality. Otherwise, a large share of the investment budget will be unscrutinised. More closely related to the Swedish water and sewerage sector, the risks associated with a constantly low execution rate should be analysed and addressed.    Originality/value  First, this paper contributes to the knowledge of aggregated capital expenditure deviations in general and specifically within the municipal water and sewerage sector. Second, analysing the municipal governance landscape adds further insights and suggestions on why budget performance varies. The results especially highlight that the governance forms of corporations and cooperations change the relation to political signalling incentives.

Capital expenditure deviations in a fragmented municipal context – the case of the Swedish municipal water and sewerage sector