Non-public shareholders' ownership and economic performance in the urban public-transport companies. Empirical evidence from European Union.

AuthorCorvino, Antonio
PositionReport

INTRODUCTION

Urban mobility (henceforth UM) is an increasingly important field in European Union policy agenda for manifold reasons. First of all, 72.9 per cent of the European population lives in urban zones (United Nations, 2011) and over 85 per cent of gross domestic European product is generated in these areas. From this standpoint, the Commission of the European Communities (2007: 3), in its Green Paper named "Towards a new culture for urban mobility", claims that "Urban areas now constitute the living environment of the vast majority of the population, and it is imperative that the quality of life in these areas should be as high as possible. That is why we must now pool our thoughts and consider the question of urban mobility".

In addition, UM represents an important factor for the economic growth. The existence of a well-developed urban transport system is essential, inter alia, to limit both the late arrival of people at work as well as goods to their destination. Respect for these conditions is fundamental to preserve the economic vitality of urban areas (Commission of the European Communities, 2007).

Moreover, decisions regarding UM systems have a great impact on environmental preservation. Indeed, the presence of even more congestion is closely correlated to the increase in both the C[O.sub.2] emissions and acoustic pollution levels.

These considerations have encouraged the European Union to develop effective measures and rules to spur improvement of UM systems in European cities. From this perspective, the Commission of the European Communities (2009), in its "Action Plan of Urban Mobility" proposes a sum of actions for UM. In particular, the Commission suggests six main areas of intervention:

  1. promotion of integrated policies inherent to UM between European cities and regions;

  2. focus on the citizens, in order to ensure "a high level of protection of passenger rights, including of passengers with reduced mobility" (Commission of the European Communities, 2009: 5);

  3. achievement of "green" urban transport through the definition of mobility policies more compatible with environmental needs;

  4. increase in resources dedicated to UM. For the future, this can be achieved by the optimization of existing resources and a better definition of the urban transportation needs;

  5. sharing of experience and knowledge between different European areas and actors;

  6. optimization of UM, as the "integration, interoperability and interconnection between different transport networks, are key features of an efficient transport system" (Commission of the European Communities, 2009: 10).

    Public administration is essential to attain the European Union objectives, as they provide the bulk of the resources allocated for the definition of UM systems. The main sources of funding are national, regional and local taxes.

    However, in recent years, the growing complexity of citizens' needs and the criticalities related to the global economic downturn have reduced the amount of public expenditure that can be invested to cover the UM system requirements. As a result, private funding contribution is unavoidable (Pollitt, 1993; Lawter, 2005; Hodge & Greve, 2007; Borgonovi et al. 2009; Girard et al., 2009). Moreover, governments started to realize that the introduction of competitive mechanisms in the organization of public services can represent an adequate way to improve the efficiency and the quality of the public services in general and, specifically, of the UM (Amaral et al., 2009). In other words, public-private partnerships (henceforth PPPs) can be seen as a governance tool that can generate benefits both for the public and private sector, combining the specific qualities of each of them and sharing the risk (Vaillancourt Rosenau, 2000; Hodge & Greve, 2007).

    On the basis of these considerations, the European Union recently began to bolster the involvement of private investors in managing UM systems through the creation of "innovative public-private partnership schemes" (Commission of the European Communities, 2009: 8) (1).

    PPPs are a refinement of the private financing initiatives for infrastructures that describe the provision of public assets and services through the participation both of the public and private sectors (Grimsey & Lewis, 2005). Depending on the country considered, PPPs can be executed in different manners. Loosely, the right to operate in a service traditionally under the responsibility of the public sector could be given to privates through concession contracts with little or no capital expenditure --which may encompass the design and the build of substantial capital assets along with the provision of a range of services and the financing of the entire construction and operation--or, alternatively, through the creation of joint ventures where there is a sharing of ownership between the public and private sectors.

    However, other scholars (Linder, 1999; Savas, 2000; Teisman & Klijn, 2002) have considered PPPs as a "language game" (Hodge & Greve, 2007) and have recognized in the "contracting out" and "privatization process" the main forms of cooperation between public and private sectors.

    Recent years have been marked out by a broader public-transport company privatization process (Suleiman & Waterbury, 1990; Bos, 1991; Bishop et al., 1994; Schmidt, 1996a, 1996b; Moe, 1996; Molano, 2000; Pollitt & Bouckaert, 2000; Borgonovi, 2004). This process contributed to heighten the presence of "non-public" shareholders in the ownership structure of public-transport companies.

    The boost of non-public shareholders' presence is desirable for at least two reasons. First of all, it can generate significant economic advantages. Specifically, private owned companies tend to be able to achieve economies of scale in carrying out their duties (Doz & Hamel, 1998; Savas, 2000; Bovaird, 2004). In some cases, this can stimulate a sizeable decrease in total service costs (Mussari, 2005). Secondly, as some scholars pointed out, the presence of non-public shareholders can improve the quality of the urban public transport service. Private owned companies often hold skills and expertise that can promote the production of services in line with the citizen/user expectations (Walsh, 1995; Domberger & Fernandez, 1999).

    That being said, this paper aims to test whether the presence of non-public shareholders in the ownership structure of the urban public-transport companies can effectively generate economic advantages for European Union UM systems. Thus, the first contribution of our paper is that of verifying whether a more relevant presence of non-public shareholders is related to greater economic performance of urban public-transport companies. In other words, we intend to investigate the effect of the "intensity"--referred to the percentage of the share capital amount that private owned companies hold--of non-public shareholders' presence on the economic performance. Indeed, the generation of these advantages is uncertain as, in some cases, the accomplishment of "individual" interests (i.e. privates' interests) could be put first to the firm economic goals. Moreover, previous studies, that analyze whether non-public shareholders' presence in the share capital of the urban public-transport companies affect economic performance, generally refer to a single national context (Oelert, 1976; Pashigian, 1976; Palmer et al., 1983; McGuire & Van Cott, 1984; Perry & Babitsky, 1986; Koppenjan 2005; Roy & Yvrande-Billon, 2007). Conversely, a second contribution of this work is that of taking an international view. We focus our attention on the European context and, in particular, we examine a sample made up by 333 transport companies operating in 12 European countries (2).

    To enhance the reliability of our results, we contemplate some context variables that can affect the efficiency of the privatization process and the firm economic performance. In more detail, according to previous literature (Bliss & Di Tella, 1997; Amaral et al., 2009), we consider the level of corruption, the government effectiveness and the regulatory quality of each country investigated.

    The aim of our work is attained thanks to the presentation and the discussion of a cross sectional OLS regression analysis. In order to achieve the goal of this study, in the next section, we carry out a review of the existing literature with regard to the investigated issues and the definition of the consequent research hypotheses. The third section describes the methodology adopted. In the fourth section, we outline the empirical evidence. Lastly, managerial implications and suggestions for future research are reported and discussed in the final section.

    LITERATURE REVIEW

    The relationship between the public administration and the company that have the responsibility to serve the urban public-transport service is a clear example of an agency relationship. Building on agency theory (Coase, 1937; Jensen & Meckling, 1976; Fama, 1980), we observed that the company's management (the "agent") could pursue some aims that come into conflict with the ones of the public administration (the "principal") (Shapiro & Willig, 1990; Bos & Peters, 1991). For instance, the management could prefer to activate development strategies to obtain a high corporate image exposure instead of maximizing economic performance and efficiency (Demsetz, 1967, 1988; Grossman & Hart, 1986) or satisfying citizens' needs (Valotti, 2005).

    In the agency perspective, the attention on economic performance is less accurate when the ownership of the urban transport company is public (Monteduro, 2010). It is known that the goal of a company owned by a public investor is the fulfillment of the citizens' needs. Therefore, the control made by the principal (i.e. the public administration) on the agent (i.e. the management of the urban transport company owned by a public investor) is mostly meant to audit his capability to meet...

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