Ownership and Performance in a Lightly Regulated Environment

Abstract

This article examines the relation between ownership and performance for New Zealand electricity lines firms over the period 1998 to 2006. The sample is of interest because it represents all firms within a single product industry (local electricity distribution), which is a natural monopoly subject to a light-handed regulatory regime. Thus we are able to examine the theories of ownership on performance, while controlling for regulation, industry, product market competition, accounting methods and other factors that might impact profitability, such as network reliability and network density. The results suggest that listed firms have similar profitability to council-owned firms and both listed and council-owned firms outperform trust-owned firms. The likely reason for the poorer performance of trust-owned firms is that they have different agency costs than listed and council-owned firms and the trustees have lower responsibility than directors. Hence, they have lower incentives to be profitable.