How do governance factors affect inefficiency? Stochastic frontier analysis of public utility firms in Japan

Fumitoshi Mizutani and Eri Nakamura ()
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Eri Nakamura: Kobe University

Economia e Politica Industriale: Journal of Industrial and Business Economics, 2017, vol. 44, issue 3, No 1, 267-289

Abstract: Abstract The main purpose of this study is to investigate how governance factors affect technical inefficiency in public utility firms. Inefficiency analysis in public utilities so far has focused mainly on industry-level treatments such as competition policy and regulations. However, since these industry-level treatments incur significant government costs and are difficult to monitor closely, management-level corporate governance, which has been widely discussed in private firms, has been attracting increased attention in recent years. In our analysis, we examine the effects of various shareholders as governance actors on technical inefficiency in public utilities. By using a panel data of 369 Japanese firms in seven public utilities from 1989 to 2015, we estimate the stochastic frontier production function. The main findings are as follows: (1) some governance factors clearly reduce inefficiency; as ownership by domestic companies and individual shareholders increases, the technical inefficiency of a public utility firm decreases. (2) However, we cannot determine the effects of foreign shareholders and financial institutions. These actors can have different effects depending on the situation. (3) Industry-level factors such as regulation and competition are shown to increase inefficiency. This indicates that conventional industry-level involvement is no longer effective in public utilities and that in the efficiency analysis more attention must be paid to the managerial improvement of public utilities.

Keywords: Stochastic frontier analysis; Corporate governance; Diversification strategy; Regulation; Competition; Public utility firms (search for similar items in EconPapers)
JEL-codes: L14 L51 M11 M21 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s40812-016-0066-1

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