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 liability 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 '90s. 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 utilities in Italy - or into a limited liability company exerts a reducing impact on production costs.