Modern state-owned firms' performance - An empirical analysis of productivity, market power and innovation

• Applicant: Professorin Dr. Astrid Cullmann
• Subject Area: Economic Policy, Applied Economics ; Statistics and Econometrics
• Term: from 2019 to 2023
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 411547861

• Final Report Year: 2024

Final Report Abstract

In this project, we empirically study the performance of state-owned firms in sectors of general interest, such as energy and water supply. Recently, local governments began to remunicipalise, thereby creating a new and modern generation of state-owned firms. The literature is unable to explain what drives performance in the public sector, by ignoring new forms of organisation, market structure and social goals which results in a lack of sound empirical analyses. We investigate to what extent variations in performance can be explained with heterogeneous internal organization and differences in public owners’ influence and assess firms' ability to manage recent socio-economic challenges, such as demographic changes and the energy transition. We build a unique firm level data base, provided by the German Federal Statistical Office for 2003-2016. To estimate productivity, we apply predominately the control function approach. In the first paper we investigate the impact of reorganization on productivity within state-owned firms addressing the owners’ composition, the board-management relationship, and the management’s decision to outsource activities. Contrary to public choice theory, we do not find support for the hypothesis that an increase in government owners’ control over the firm, either through shares or the board’s control rights, decreases productivity. Moreover, we find that outsourcing increases productivity. In a second paper, we analyze the cost-efficient provision of electricity distribution grids and investigate whether ownership type explains variations in performance. We find that state-owned and privately-owned firms do not differ in their transient efficiency scores. Persistent efficiency differences are revealed, suggesting that privately-owned distribution firms select electricity networks with more favorable structural conditions. We further find in a third paper that firms operating in the eastern parts of Germany have undergone a profound restructuring after the reunification in 1990 performing, on average, better in terms of persistent efficiency. In a fourth paper, we investigate the impact of demographic changes on local public services, taking the case of water service. We provide evidence that demographic changes cause significant cost increases in rapidly shrinking and ageing regions. In the fifth paper, we investigate the impact of small-scale distributed generation on the efficiency of electricity distribution system operators. We provide evidence that small scale distributed generation has a positive effect on firms’ cost efficiency. In a further study, we investigate the innovation dynamics of state-owned firms in the energy sector. Descriptive analyses show that state-owned firms invested little and overall expenditures on research and development are declining. Innovations are being acquired from other sectors through investments in the areas of climate protection and digitalization. Our empirical results contribute to the ongoing discussion surrounding remunicipalization. They help to understand the role of state-owned firms facing the energy transition and demographic changes. We offer insights for policymakers seeking to optimize resource allocation and governance structures with a more nuanced understanding of the complexities inherent in the management of stateowned firms.

Publications

• Innovationen im Energiebereich: Unternehmen forschen wenig selbst, investieren aber verstärkt in Klimaschutz und Digitalisierung. DIW Wochenbericht 33/2019. pp. 563-572
  Cullmann, A., Kemfert, C., Kritikos, Alexander S., Niehues, J., Stiel, C. & Rechlitz, J.
  
• Kommunale Infrastrukturunternehmen zwischen Energiewende und demografischem Wandel. Zeitschrift für amtliche Statistik Berlin Brandenburg. 13(1). pp. 20-23.
  Cullmann, A. & Stiel, C.
  
• The Effect of Restructuring Electricity Distribution Systems on Firms’ Persistent and Transient Efficiency: The Case of Germany. The Energy Journal, 42(4), 1-20.
  Badunenko, Oleg; Cullmann, Astrid; Kumbhakar, Subal C. & Nieswand, Maria
  
• Cost and productivity effects of demographic changes on local water service. Utilities Policy, 79, 101435.
  Cullmann, Astrid & Stiel, Caroline
  
• Data Documentation 103 / 2022. Official Data on Investments in Environmental Protection: Data Documentation (2005 - 2016)
  Rechlitz, J.
  
• Remunicipalization, corporatization, and outsourcing: the performance of public-sector firms after reorganization. International Public Management Journal, 26(4), 463-488.
  Stiel, Caroline