Corporatization and Firm Performance: Evidence from Publicly Provided Local Utilities

This study investigates the effects of the corporatization process – i.e. the transformation of a municipal firm into a limited responsibility company – on the production costs of local public services whose ownership is maintained by the local government. Theoretical analysis predicts that, even without privatization, corporatization is a potentially effective way to improve efficiency (Shleifer and Vishny, 1994; Stiglitz, 2000). We explore this issue by using information on a typical local utility, such as the bus service provided by public transit systems in Italy, which experienced a reform of the governance towards the corporatization structure during the nineties. The results on a sample of 33 local bus companies over the period 1993-2002 show that, even if public ownership persists, the transformation of a municipal enterprise into an autonomous company – corresponding to the first stage of the corporatization of local utilites in Italy – or into a limited responsibility company exerts a reducing impact on the production costs.