Remunicipalization, Corporatization, and Outsourcing: The Performance of Public-Sector Firms after Reorganization

Abstract

This article investigates the impact of reorganization on productivity within public-sector firms addressing the owners' composition, the board-management relationship, and the management's decision to outsource activities. Considering a large panel of 2,325 German municipally owned utilities between 2003 and 2014, firm-level productivity is estimated based on a control function approach. Contrary to public choice theory, I do not find support for the hypothesis that an increase in government owners' control over the firm, either through shares or the board's control rights, decreases productivity. Looking at reorganization invoked by the management, I find that outsourcing increases productivity, where effects are strongest for service outsourcing.