This dissertation focuses on the relationship between decentralization and capacities in local governance addressing the central question of ‘when decentralisation leads to better governance?’. Literature in public management suggests that local governments can monitor and act better on local needs, thus empowering local government with the discretion to mobilize local resources leads to higher accountability, efficiency and effectiveness in governance. This edifice was first challenged when contradictory results were attained from case studies in developing countries in the 1990s. The cases showed that decentralization may lead to higher corruption, local elite capture and decrease in public service quality. These equivocal outcomes of decentralization practices were largely addressed as part of 'management deficit' in governance and various capacity building programmes have been implemented by international donor organizations to educate managers, organizations, even communities and institutions. Albeit not being a substantial evidence of improvement in governance, every year billions of dollars are spent on capacity building programmes to enhance the governance capacity in developing countries. Relying on surveys and official data collected from 65 Turkish provincial municipalities, this dissertation provides evidence that socio-economic conditions are the main determinant on the outcomes of decentralization in comparison to governance capacity. Using regression based analysis, the paper suggests the relationship between decentralization and governance should be addressed not only on managerial perspective but also on developmental level.