Corporatization and the behavior of public firms: how shifting control rights affects political interference

Corporatization and the behavior of public firms: how shifting control rights affects political interference
Michael Klien (Chaire EPPP)
Abstract: As an alternative to privatization, corporatization implies a shift of control rights from politicians to managers while ownership remains public. Even though corporatized firms are fairly common – both in Europe and the US – little empirical work has tried to quantify the effects of corporatizations.
This paper tries to fill this gap by analyzing the effect of corporatization on the price setting behavior of public firms. The theoretical prediction that corporatization decreases political interference in price setting is tested using a dataset of Austrian water providers. The empirical evidence largely corroborates this hypothesis. More specifically, the results show that the impact of electoral cycles and partisan politics and on prices setting is significantly restrained for corporatized firms.