Ownership, Institutions, and Productivity of European Electricity Firms

Abstract:     
Using firm-level balance-sheet data comparable across EU countries, we consider firms active in generation, distribution and transmission of electricity and their ownership structure to empirically investigate the interaction of public versus private ownership and the quality of institutions as determinants of productivity. While earlier literature has traditionally focused on ownership as an internal governance mechanism, and has suggested that public ownership is associated with lower productivity than under private ownership, here we focus on the role of institutions as an external governance mechanism.

After controlling for size, wages, countries and sectors, we confirm that government-owned tend to be less productive than their private counterparts (a result robust to different productivity measures), but we also discover two new facts. First, when the control of the firm by government is indirect, i.e. when government ownership is at the top of the control chain, the negative productive effect is weaker. Second, this effect is smaller in countries with high-quality institutions and public enterprises are more efficient than in countries with a poor institutional environment.

Number of Pages in PDF File: 35

Keywords: Public ownership, electricity, productivity, institutions

working papers series