The impact of governance structure on firm performance : an application to the German water distribution sector

Abstract

This paper investigates the impact of governance structure on firm performance (i.e., retail prices) using a database of 765 German water suppliers. Controlling for scale economies as well as technical and structural characteristics, we find that private sector participation is accompanied with higher retail prices. Furthermore, Eastern states on average feature higher prices mirroring significant investments during the past two decades as well as network over-dimension. Assuming that managers make strategic decisions (e.g., governance form) not randomly but rather decide based on expectations of how their choices affect future performance, we test for this self-selection applying a two-stage model.