Firm's profitability and regulation in water and network industries: An empirical analysis

Arnaud Reynaud and Alban Thomas

Utilities Policy, 2013, vol. 24, issue C, 48-58

Abstract: The profitability of a firm is a highly complex concept, as it results from firms' decisions on investment and production plans, but also from constraints beyond their control (economic regulation, level of competition, economic growth). We analyze the profitability of firms in the water industry by focusing on the impact of economic regulation and the economic environment. The objective is to determine empirical regularities which could explain profitability. Using a panel of firms from developed and transition countries, we show that the profitability of firms in the water sector is in line with that in other network industries. Profitability varies greatly depending on the chosen measure of profitability, firm's size, the economic environment and the characteristics of regulation in place are essential to understand and explain firm's profitability. In particular, being regulated by a price-cap scheme appears to be an important determinant of profitability.

Keywords: Water utilities; Network industries; Regulation; Profitability; ROE; Net margin (search for similar items in EconPapers)
JEL-codes: C23 D2 L9 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:juipol:v:24:y:2013:i:c:p:48-58

DOI: 10.1016/j.jup.2012.07.002

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