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Productivity in electricity generation:

The role of firm ownership and regional
institutional quality
a
Chiara F. Del Bo
a
Università degli Studi di Milano , DEMM, Via Conservatorio 7,
Milano , 20122 , Italy
Published online: 26 Mar 2013.
To cite this article: Chiara F. Del Bo (2013) Productivity in electricity generation: The role of firm
ownership and regional institutional quality, International Review of Applied Economics, 27:2,
237-264, DOI: 10.1080/02692171.2012.734792
To link to this article: http://dx.doi.org/10.1080/02692171.2012.734792
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International Review of Applied Economics, 2013
Vol. 27, No. 2, 237–264, http://dx.doi.org/10.1080/02692171.2012.734792
Productivity in electricity generation: The role of firm ownership

and regional institutional quality
Chiara F. Del Bo*
Università degli Studi di Milano, DEMM, Via Conservatorio 7, Milano 20122, Italy
(Received 4 May 2012; final version received 24 September 2012)
Downloaded by [University of Cincinnati Libraries] at 09:29 01 January 2015
The electricity generation sector is considered the most competitive segment of

the industry and has undergone significant reforms in recent years. Liberaliza-
tion, market opening and privatizations have characterized, with country-specific
variations, the European electricity supply market. This paper examines the links
between possible outcomes of these reforms, in particular firm ownership, and
total factor productivity, while also controlling for regional characteristics.
Results of the estimation of quantile regressions show that foreign ownership is
associated with higher total factor productivity (TFP) levels, while public owner-
ship exhibits a different behavior in different quantiles. Regional institutional
quality is positively related to TFP. Results are robust to alternative TFP
measures.
Keywords: productivity; electricity supply; foreign ownership; public owner-
ship; density; regional institutions
JEL Classifications: L25, L94, F23, L32, R12
1. Introduction and motivation

The European electricity market has been characterized, in the past 20 years, by a
unique cross-country process of reform aimed at achieving a competitive and liber-
alized internal market. The 1996 EU Directive (Directive 96/92/EC) was the starting
point, followed by the 2003 Directive (Directive 03/54/EC), which contained con-
crete provisions of market design, providing the basis for the unbundling of trans-
mission and distribution systems, established independent regulatory agencies and
fostered free entry in the generation segment of the industry. The 2009 Directive
(Directive 09/72/EC) includes further specific requirements to the creation of an
internal electricity market in the EU. Historically, the current reform paradigm dates
back to the British energy reform, which started in 1989 with the Electricity Act,
and is characterized by privatization, unbundling and liberalization (Del Bo and
Florio 2012). The underlying idea guiding this reform process is that, on the one
hand, public ownership is less efficient than private ownership, and, on the other,
that market opening and free liberalization will bring new players in the industry,
thus leading to greater competition and deliver production and allocative efficiency.
The current situation in Europe with respect to the progress of the reform
process shows however quite a heterogeneous picture. By analyzing the evolution,
*Email: chiara.delbo@unimi.it
Ó 2013 Taylor & Francis

238 C.F. Del Bo
between 1980 and 2007, of the ETCR indicator (OECD regulatory dataset; Conway
and Nicoletti 2006) which aggregates data on privatization, unbundling and liberal-
ization, it is clear that, while the path towards liberalization is generalized, the own-
ership structure is still quite varied. In fact, while only in few countries1 does the
electricity sector appear to be not yet fully liberalized, several European countries
still have a high presence of fully or partially public firms active in the industry.2
This indicator thus suggests that the reform process may entail the coexistence of
liberalized markets with the direct involvement of public bodies in the electricity
sector (Haney and Pollitt 2010).
A natural research question is thus related to the correlation between ownership,
which has been affected by the reform process in the electricity sector, and firm-
level performance as measured by total factor productivity (TFP) and can be
formalized as follows:
RQ1: In the context of the general reform process at the EU level in electricity
generation, with privatizations and entry of foreign firms, what is the
relationship between ownership and firm-level productivity?
Ownership in the electricity generation sector has been influenced by the reform
process, with the emergence of private actors (both as new entrants and as the result
of the privatization process) and the entry of foreign firms in national markets, both
directly and through acquisitions and mergers. Firm ownership can be seen as an
internal institutional factor, which has a direct influence on firm-level performance
and productivity as it determines internal strategies in terms of management and
production. Specifically, ownership is related to productivity as it affects the rules
governing the appointment of managers, the design of production plans and the
input mix, the choice of suppliers and, in general, the overall design of firms’ poli-
cies. Considering instead external factors that may influence productivity, institu-
tional quality and elements of governance are also being considered as important
determinants of firms’ behavior and performance (Dal Bo and Rossi 2007;
Commander and Svejnar 2011) and the local environment in which firms operate
has also been increasingly taken into account (Yeung 2000; Marrocu et al., 2012).
Market and contour conditions at a more disaggregated spatial level such as the
region in which a firm operates, are important determinants of the firm’s efficiency,
alongside internal factors, such as public or private ownership. The presence of a
well-functioning public administration, rule of law and low levels of corruption at
the regional level should be beneficial to firms’ activities and entail a positive rela-
tionship with TFP, as will the size of the local market. The quality of the local insti-
tutional infrastructure may in fact help or hinder a firm’s ability to efficiently select,
manage and use inputs of production, and this may also be related to the firm’s
ownership structure. These considerations thus lead to the second research question:
RQ2: Is firm-level productivity related to regional factors, most notably institutional
quality and the density of economic activities, while controlling for differences
in ownership?
The aim of this paper is thus to analyze the relationship between public and foreign
ownership, as a result of the reform process, and regional factors, in particular den-
sity and institutional quality, with firm-level TFP in the electricity generation sector,
on a sample of EU firms from 20 countries in 173 regions between 2002 and 2009.
International Review of Applied Economics 239
The cross-country perspective allows moving beyond single-country studies and

provides a broader analysis of TFP determinants, while considering a homogeneous
sector entails more precise TFP measures and a more focused analysis. In order to
account for potentially varying implications depending on the level of TFP, a quan-
tile regression approach is used, which unveils interesting non-linearities in the
investigated relationships.
In the next section, a brief overview of the related literature is presented, while
the dataset is described in detail in Section 3. Section 4 presents the empirical
model in two steps. In the first step, TFP is estimated with different methodologies,
and is then used in the second step as the dependent variable. In Section 5, the link
between ownership and regional variables with TFP is presented and discussed,
while Section 6 summarizes and concludes.
2. Related literature
The literature on the efficiency of the generation segment of the electricity industry
has mainly been framed in firm-level or sectoral level single-country studies. Empir-
ical analyses of firm-level productivity determinants in the electricity generation
sector have highlighted the importance of a set of technical – such as economies of
scale and generating technologies – and organizational factors, most notably related
to the ownership structure. Broader sectoral studies have also examined the role of
regional and institutional factors along with sector-specific characteristics, and have
assessed the extent and impact of regulatory reforms and liberalization.
For a general overview on the reform process of the electricity industry, Jamasb
and Pollitt (2005), for the EU, and Kwoka (2008) for the US offer a comprehensive
review of its impact on the industry structure, on firms’ productivity and the effects
on consumer prices, focusing on privatization, liberalization and general market
opening. Jolink and Niesten (2008) offer instead a critical appraisal of the European
liberalization and re-regulation of the electricity industry, highlighting limited suc-
cess in governance transformations.
Starting from firm-level studies of productivity, Shiu and Lam (2004), examining
TFP growth of thermoelectric Chinese generating companies between 1995 and
2000, find that fuel efficiency and capacity utilization rates affect technical efficiency
of power generation. Shrivastava, Sharma, and Chauhan (2012) examine instead the
efficiency of coal fired power plants in India and the results point to the existence of
significant economies of scale in the sector. Consistent with the underlying rationale
of power sector reform in India and previous literature highlighting a managerial
advantage of privately owned firms, public ownership is also found to be associated
with lower productivity in the sample considered, suggesting an efficiency advantage
argument for private ownership. Akkemik (2009) examines the cost-efficiency of the
Turkish electricity generation sector, highlighting the importance of economies of
scale and quality of regulation. Abbott (2005) presents a review of the literature on
productivity in the electricity industry and stresses the role of economies of scale, of
the regulatory framework and the private vs. public ownership structure. With
respect to the latter, evidence on the ownership-productivity relationship from the
reviewed contributions is mixed and depends on the sector considered and on the
output level of firms. In earlier studies, private firms have generally been found to be
more productive in the generation segment of the industry and at low levels of out-
put. Focusing on a cross-section of 182 steam-electric generating US firms in 1986,
240 C.F. Del Bo
Koh, Berg, and Kenny (1996) frame the private vs. public comparison in a scale
argument, and find that public firms are more efficient at low output levels, suggest-
ing that each ownership type presents specific advantages mainly related to different
costs of monitoring structures. Kwoka (2005) attributes the differences between
private and public electricity firms to quality differences, with a sample of 147 US
electric utilities in 1989, suggesting that public firms specialize in higher quality
distribution services, in which they have an advantage over private firms due to the
interplay of the impact of the regulatory framework and contractual incompleteness.
Public firms are found to have an efficiency advantage in producing goods and ser-
vices whose quality is difficult to ascertain a priori, with lower costs in the electricity
distribution sector, as compared with lower costs in generation achieved by private
entities. A similar finding related to the advantage of private firms in the generation
sector can be found in the cross-country analysis in Pollitt (1995) while Hausman
and Neufeld (1991), in a more historical perspective, document the opposite result
for US generating firms. From this brief review of the literature on the impact of
public ownership on productivity and efficiency in the electricity sector, the evidence
does not seem to be conclusive and warrants more detailed analysis, especially
moving beyond single-country studies.
Concentrating instead on foreign ownership, results are pointing towards a pro-
ductivity advantage of foreign firms and their affiliates with respect to domestic
firms. Blackman and Wu (1999) analyze the impact of foreign direct investment on
the efficiency of China’s power sector, finding a significant positive effect in terms
of more advanced generating technologies with respect to domestic firms. Interest-
ingly, the impact of foreign ownership on productivity in the electricity generation
sector appears to be a somewhat neglected topic in the literature and this paper aims
at providing evidence for the EU on this issue.
These findings on public and foreign ownership are related to the broader litera-
ture exploring the links between productivity and ownership, mainly in manufactur-
ing sectors. In particular, see Megginson et al. (2004) and Cabeza-García and
Gómez-Ansón (2011) for the link between privatization and productivity, in a cross-
country and Spanish perspective, respectively, and Harris and Robinson (2003) and
Griffith, Redding, and Simpson (2004), to name a few, for the foreign ownership
efficiency advantage literature. Much of the earlier literature on the nexus between
private versus public ownership and productivity is based on an underlying assump-
tion of superior efficiency associated with private ownership, fostered by reduced
market intervention and related inefficiencies, increased competition, profit oriented
management and less severe information asymmetries. When examining instead the
impact of foreign ownership, higher productivity of foreign owned firms is
explained, in earlier studies, by firm specific advantages of foreign over domestic
firms, especially in terms of superior managerial and technological capabilities and
the extent of foreign firms’ networks (Aitken and Harrison 1999).
The consideration of regional aspects in shaping firm-level behavior and produc-
tion and cost efficiency has gained increased attention in the economic literature.
Ciccone and Hall (1996) focus on density and show that there is a positive relation
between employment density and US states’ productivity, based on the existence of
local externalities, which foster increasing aggregate returns, a result that has been
reinforced by Andersson and Loof (2011) which use disaggregated firm-level data
and confirm the association between regional density and firm productivity. By
using firm-level information, the contribution of local external benefits related to
agglomeration and the regional environment is ascertained while controlling for

individual firm attributes. In the Swedish electricity sector, Hjalmarsson and Veider-
pass (1992) show that density leads to productivity growth, a result that has been
confirmed by several studies, with a focus mainly on the electricity distribution
sector in selected countries (Pérez-Reyes and Tovar 2010 for Perù, and Goto and
Sueyoshi 2009 for Japan).
Institutional quality plays an important role for the growth of countries (Knack
and Keefer 1995; Mauro 1995; Glaeser et al. 2004; Acemoglu and Robinson 2010)
and firms’ productivity and efficiency (Dollar, Hallward-Driemeier, and Mengistae
2005 in developing countries and Scarpetta et al. 2002 for OECD countries). With
respect to the latter issue, a firm’s performance and productivity is influenced by
the environment in which it operates, which can be identified as the institutional,
regulatory and governance framework. De Rosa, Gooroochurn, and Görg (2010)

tackle this issue empirically, and provide compelling evidence of the negative effect
corruption has on firm-level productivity, explicitly refuting the ‘efficient grease’
hypothesis suggesting that corruption might benefit productivity by reducing time to
run business for firms. Borghi, Del Bo, and Florio (2011) examine the interplay
between the institutional setting and public ownership on productivity in the context
of local monopolies in the electricity distribution sector. Their results point towards
the paramount importance of institutional quality in influencing firm-level produc-
tivity by providing the favorable external environment to a productive and efficient
firm, and mitigating the negative correlation associated with public ownership.
This paper is aimed at combining and extending the literature on ownership
(both public and foreign) on firm-level productivity, with the insights from studies
on the role of regional and institutional factors. The explicit focus on generation,
which is characterized as being the potentially most competitive segment of the
electricity sector, and the cross-country perspective, over 8 years in the EU, will
add to the understanding of the correlation between internal ownership arrange-
ments and external institutional factors on firm-level productivity.
3. Data and descriptive statistics

The analysis focuses on firms declaring as their primary activity the generation of
electricity (3511) according to the NACE Rev.2 classification.
Firm-level data used to compute total factor productivity and other firm-specific
determinants is taken from the Amadeus database (Bureau Van Dijk). This database
collects and reports yearly balance-sheet data provided to national statistical offices
by European private and public companies. The variables considered in the empiri-
cal analysis are operating revenues, the number of employees, total assets and tangi-
ble fixed assets, material costs, the average wage and the amount of shareholder
funds. Ownership information is also extracted from the Amadeus database. Focus-
ing on the ultimate owner (defined as the independent shareholder of a firm with
the highest direct percentage of ownership) and using information on its country of
origin and on its public or private nature, firms are classified in our analysis into
four classes, namely: private domestic, private foreign, public domestic and public
foreign. Balance-sheet data are available yearly between 2002 and 2009, while own-
ership data refers to the latest year of available data for each firm. Entries with
obvious keypunch errors are corrected, while firms without ownership information
are dropped from the sample. Finally, firms are geo-referenced at the NUTS2
242 C.F. Del Bo
(Nomenclature of territorial units for statistics) level, allowing matching with

regional variables of interest, namely density (Eurostat) and institutional quality
(Charron, Lapuente, and Dykstra forthcoming).
Data on regional institutional quality is the result of a survey of roughly 34,000
respondents in Europe in December of 2009, where respondents in 172 NUTS 1
and NUTS 2 regions within 18 of the 27 EU countries were asked 16 questions on
quality of government (QoG) in their region. The aggregate regional index is the
result of the aggregation of the individual questions pertaining to the three main
concepts of ‘quality’, ‘impartiality’ and ‘corruption’.3 The basis for the construction
of this indicator is the combined WGI (World Government Indicator) index (with
equal weighting) that aggregates information on ‘control of corruption’, ‘govern-
ment effectiveness’, ‘rule of law’ and ‘voice and accountability’ (Kaufmann, Kraay,
and Mastruzzi 2009). The resulting index used in the empirical analysis uses both
regional and country information and is constructed as follows:
EQIrc ¼ WGIc þ ðRqogrc CRqogc Þ ð1Þ
where subscript r refers to regions and c to countries, WGI is the World Bank‘s
national average for each country, Rqog is each region‘s score from the regional
survey and CRqog is the country average (weighted by regional population) of all
regions within the country from the regional survey. EQI is standardized with mean
0 and standard deviation of 1. As mentioned, this index is available only for year
2009 and for each region the value of the indicator in 2009 has been assigned to all
time points in the panel. This procedure should not alter results significantly since
institutions are typically not volatile over short periods of time (Eicher and
Schreiber 2010) and should not give rise to significant endogeneity problems.
The resulting dataset is an unbalanced firm-level panel of 1268 firms, in 20
European countries and 173 NUTS2 regions (see Table A1 for a complete list of
regions and countries in the sample), between 2002 and 2009.
Table 1 presents some descriptive statistics for the year 2008 (the single year
with the highest number of firms available) and the whole panel and distinguishes
between ownership types.
For a total of 4005 observations (corresponding to 662 firms in 2008), 42% are
private domestically owned (44% in 2008), 14% (17% in 2008) are private foreign-
owned, 35% (32% in 2008) are domestic state-owned while the remaining 8% (7%
in 2008) are foreign-owned public firms. A very small number of foreign firms (16)
are from non-EU countries, while the remaining are from EU countries. Overall,
foreign firms represent 23% of the total sample (24% in 2008), while public, or
state-owned firms correspond to 43% of the sample (39% in 2008).
From Table 1 it is clear that public firms are, on average, larger than private
firms, in terms of employees, total fixed assets and operating revenues. The pattern
is instead not so clear for foreign private firms, which appear to have fewer
employees and operating revenues than their domestic private counterparts. Compar-
ing formally, by means of t-tests, differences between foreign and domestic firms,
on one hand, and public and private firms on the other, confirms the general picture
provided by simple descriptive statistics. When considering foreign versus domestic
firms, statistically significant results are found only for operating revenues, which
are on average higher for foreign-owned firms. On the contrary, public firms are
Table 1. Descriptive statistics.
Sample Private domestic Private foreign Public domestic Public foreign

2008 Panel 2008 Panel 2008 Panel 2008 Panel 2008 Panel
no. 662 no. 4005 no. 294 no. 1685 no. 111 no. 588 no. 211 no. 1415 no. 46 no. 317
Employees 261 287 272 341 651 834 614 701

Total fixed assets 112,114 143,211 117,551 135,127 371,308 474,472 438,688 466,810
Operating revenues 214,306 215,713 196,803 203,741 529,094 421,576 1,558,443 1,166,876
International Review of Applied Economics
243
244 C.F. Del Bo
Figure 1. Ownership and institutions.

found to have statistically significant higher operating revenues, more employees
and total fixed assets than private firms.
Finally, Figure 1 presents an overview of the presence of different types of own-
ership patterns for different levels of regional institutions, re-coded in six ascending
classes (with regions characterized by lower quality of institutions in lower classes).
With respect to public ownership, public domestic firms are clearly more frequent
in regions with good institutional quality (classes five and six, 60% and 54%,
respectively), while public foreign firms are relatively more abundant in the lower
institutional classes (9%, 7% and 9% in the first, second and third classes, respec-
tively). In parallel, domestic private firms are the majority in the first three classes,
representing 54%, 52% and 53% of the total in classes one, two and three. Private
foreign firms are also more frequent in the lower classes, in particular being 25% of
all firms in the second and third class.
4. Empirical strategy
The empirical investigation aimed at analyzing the relationship between ownership,
as the outcome of the reform process of the electricity sector in the EU, and regio-
nal variables, with a focus on institutional quality, with firm-level productivity, is
carried out in two steps. First, firm-level total factor productivity (TFP) is estimated,
then the association between the firm-level and regional level determinants and
productivity is considered by means of quantile regression analyses.
4.1. Empirical model: Productivity measures and determinants

As an indicator of firm performance, TFP summarizes output differences that are not
explained by differences in the inputs used in the production process, and is usually
estimated as a residual from a production function (see for example Lichtenberg and
Siegel 1990 for early applications and, more recently, Javorcik 2004 and Brynjolfs-
son and Hitt 2003). As such, TFP, also called multifactor productivity, is a summary
measure of variations in output not accounted for by the observable inputs, which
may depend on a set of firm-specific factors unknown to the researcher (Syverson
2011).
TFP is estimated from a Cobb-Douglas production function of the following

form:
yit ¼ b0 þ b1 kit þ b2 lit þ b3 mit þ eit ð2Þ
where lower-case letters are natural logarithms, subscript i refers to firms and t to
years.
Output y is measured by operating revenues, the capital input k is proxied by
tangible fixed assets, labor l by employees and material costs m are measuring the
use of intermediate inputs.
We also use a more flexible production function, relaxing the assumption of
unitary elasticity of substitution, and estimate a translog model (Berndt and
Christensen 1973), of the following form:
yit ¼ b0 þ bk kit þ bl lit þ bm mit þ bll lit2 þ blk lit kit þ blm lit mit þ
ð3Þ
þ bkk kit2 þ bkm kit mit þ bmm m2it þ eit
A possible drawback of this estimation strategy is related to a simultaneity problem

(Van Beveren 2012): firm-specific productivity shocks and individual input choices
may be correlated. Firms’ input choices may thus be affected by previous productivity
levels and be varied accordingly. Different estimation techniques have been proposed
in the literature to overcome this problem (for a review, see Syverson 2011 and Bar-
telsman and Doms 2000). However, the nature of the industry under study may sug-
gest that simultaneity should not be a significant problem. In the electricity generation
sector, fixed capital inputs are characterized by high initial investment and are not var-
ied frequently, due to the relevant costs involved (Bohringer 1998), especially in the
relatively short time period considered in the present analysis. Furthermore, several
authors have pointed out that the resulting TFP measures obtained by different estima-
tors and methods are highly correlated (Van Beveren 2012 and Van Biesebroeck
2008) suggesting that the results of the second step exercise should not be influenced
significantly by the estimators chosen in the first step.
After estimating the Cobb-Douglas and translog production functions with fixed
effects, measures of TFP are obtained as the residual of the regression. These
measures are then used in the second step estimations, which highlight the
importance of ownership, firm-level determinants and regional characteristics.
As a consistency check, TFP is also measured by means of stochastic frontier
analysis (SFA). SFA (Kumbhakar and Lovell 2000) assume that firms (or the units
of observation) will produce below some deterministic production frontier, which is
affected by external random shocks. Thus, randomness may be in the production
process and in the possibility that firms are technically inefficient. Stochastic fron-
tier methods provide an estimate, with Maximum Likelihood, of the mean level and
variance of average inefficiency, while relying on parametric assumptions on the
distribution of the random terms (for an early application, see Seitz 1971). The esti-
mated production function is of the form presented in equation (3) and first stage
results are expressed in terms of efficiency levels implied by the SFA procedure.
Results for the SFA methodology are presented in Section 5.1.
Table 2 shows positive and significant correlation among the three TFP
measures adopted.
246 C.F. Del Bo
Table 2. Correlation between different TFP measures.
TFP CD TFP Trans TFP Front

TFP CD 1
TFP Trans 0.8676 1
TFP Front 0.7156 0.7282 1
Notes: Pearson correlation coefficients, all statistically significant at the 1% level. CD=Cobb-Douglas;
Trans=Translog and Front=Frontier.
In the second step, we first consider both the nature and nationality of the
ultimate owner and compare private domestic firms (our base category) to foreign-
owned private firms, public domestic firms and public foreign firms:
TFPit ¼ b0 þ b1 private foreign þ b2 public domestic þ b3 public foreign þ eit ð4Þ
We then add the relevant firm-level controls that might help in explaining
differences in productivity levels and focus on the size of firms (measured by total
assets), the size and composition of the work force (indirectly captured by the firm’s
average wage, with higher wages paid indicating a potentially more qualified work
force) and the firm’s solvency ratio (measured by the ratio of direct shareholder
funds to total assets) to control for financial characteristics of firms:
TFPit ¼ b0 þ b1 private foreign þ b2 public domestic þ b3 public foreign þ b4 total assetsþ

b5 wage bill þ b6 solvency þ eit
ð5Þ
Finally, the regional dimension is added and the relation of firms’ TFP with the
density of economic activities (proxied by regional population density) and the
regional institutional setting (regional quality of government aggregate index) is
analyzed. Firm productivity should be affected by density as this may entail higher
degrees of market competition, the presence of localized knowledge spillovers and
higher wages. A good institutional setting will instead provide a well-functioning
environment, with good protection of property rights, rule of law and low corrup-
tion, which will positively impact on firms’ economic performance.
TFPit ¼ b0 þ b1 private forieign þ b2 public domestic þ b3 public foreign þ b4 total assetsþ

b5 wage bill þ b6 solvency þ b7 density þ b7 QoG þ eit
ð6Þ
The choice of the quantile regression approach as the estimation procedure is sug-
gested by the properties of the distribution of firm-level productivity and allows a
better understanding of the interrelation of our variables of interest beyond the
simple average relationship provided by ordinary least square (OLS) regressions.
TFP (expressed in logs) is not distributed as a standard normal, exhibiting val-
ues of kurtosis and skewness of 8.81 and –0.51, respectively, for the Cobb-Douglas
specification, and 16.61 and –1.36 for the translog measure. The SFA TFP has val-
ues of 6.96 and 1.94 for kurtosis and skewness. These figures suggest that the
behavior of productivity varies over its distribution, and the correlation with other
Table 3. Total Factor Productivity and ownership.
Private domestic Private foreign Public domestic Public foreign

Std Std Std Std
Mean Deviation Mean deviation Mean deviation Mean deviation
TFP CD 4.08 1.03 4.43 1.03 4.36 0.613 5.15 0.957
TFP Translog 4.01 0.89 4.25 0.86 4.22 0.45 4.61 0.65
TFP Frontier 0.24 0.19 0.29 0.19 0.23 0.12 0.38 0.23
Notes: CD=Cobb-Douglas; Trans=Translog and Front=Frontier.
variables of interest may exhibit a nonlinear behavior that will not be adequately
captured by an OLS estimation, but which may vary across quantiles. The next
sub-section will introduce quantile regression methods to better gauge the relation-
ship between firm-level productivity and a set of relevant determinants.
Table 3 provides a preliminary description of the relationship between owner-
ship status and productivity. An initial inspection highlights that foreign ownership
appears to be associated with higher productivity using all TFP measures, and the
same appears to be true for public (compared to private) firms. The group that
exhibits the highest productivity levels is that of public foreign firms, while the
lowest values are found in domestic private firms.4
4.2. Quantile regressions

Quantile regressions methods (Koenker and Hallock 2001) allow estimation of
conditional quantile functions, where the quantiles of the conditional distribution
of the dependent variable of interest are a function of the observed regressors.
Quantile regressions provide information about the relationship between the
dependent variable, y, and a set of regressors, x, at different points in the condi-
tional distribution of y. Quantile regressions present several advantages over OLS
regressions, which summarize the average relationship between y and regressors,
x, through the conditional mean function E(y|x). Quantile regressions may help
overcome the problem of sensitivity of OLS to outliers, as the median (or least
absolute-deviations) regression is more robust to outliers; they provide a more
complete characterization of the data, especially in the presence of non-normalities,
by examining the impact of regressors on the full distribution, or selected quan-
tiles, of the dependent variable; do not require the existence of the conditional
mean for consistency and are invariant to monotonic transformations (Cameron
and Trivedi 2005).
Formally, the qth quantile estimator βq is obtained through linear programming
by minimizing over the following objective function:
X
N X
N
Qðbq Þ ¼ qjyi x0i bq j þ ð1 qÞjyi x0i bq j; where 0\q\1
a:yi x0i b a:yi\x0i b
This objective function is such that there are asymmetric penalties for over-pre-
diction and for under-prediction, depending on the quantile under consideration.
The estimator that solves the minimization problem is asymptotically normal under
248 C.F. Del Bo
general conditions. Estimates of the variance-covariance matrix are obtained using

the paired bootstrap method (Cameron and Trivedi 2009; Hahn 1995), which pro-
vides a way of performing statistical inference (i.e. computing standard errors) by
generating multiple samples by resampling from the available sample.
In the empirical exercise, estimations are run at the 0.1, 0.25. 0.50, 0.75 and
0.90 quantiles and standard errors are obtained by 100 bootstrap replications. A
joint equality test across quantiles is provided for each variable in every table, over-
all rejecting the null that coefficients are equal across quantiles, providing a solid
statistical basis for the chosen modeling specification. All regressions include coun-
try and year dummy variables and are obtained for observations from 2002 to 2009.
Similar conclusions can be drawn by focusing on one year cross-sectional regres-
sions.5 A potential pitfall of the analysis is related to the fact that the ownership
variable refers to the last year available in the panel for each firm. While the fact
that cross-sectional regression results are qualitatively similar is reassuring, inspec-
tion of the country by country evolution of ownership justifies considering the panel
dimension. By combining information from the ETCR indicators (OECD regulatory
dataset; Conway and Nicoletti 2006) and information on privatization episodes from
the Privatization Barometer in the electricity sector,6 for most of the countries in the
sample the switch of regime for the most important firms, in terms of size and mar-
ket share, has taken place before 2002, the first year of the panel. Considering
countries that are, in 2007, still mostly public according to the ETCR indicators,
Austria’s main privatization episode was in the late 1980s, as in Estonia. In the
Czech Republic a major privatization took place in 2003, while the major players
in France, Poland, Slovenia, Slovakia and Sweden have not undergone significant
ownership shifts in the years covered in the present analysis. In countries with a
mixed structure, such as Finland, Hungary, Portugal and Germany, the main privati-
zation episodes have taken place mainly between 1995 and 2001. A potential prob-
lem is related to Italy, where one of the main players, ENEL, has undergone
significant ownership changes in recent years. Excluding this country from the
sample, both in the panel and cross-section, however, yields very similar results to
baseline regressions presented in the following section.7 Finally, Spain and
Belgium, mostly private according to the ETCR, have been characterized by this
ownership pattern since 1998 and the 1980s, respectively.
5. Results and discussion

5.1. Baseline estimates
Table 4 presents results of the estimation of equation (4), which models the relation-
ship between TFP and ownership structure. Firms whose ultimate owners are for-
eign private entities are, across all quantiles and with both TFP measures,
associated with higher levels of productivity than domestic private firms, the base
category in this regression analysis. This result is much in line with previous empir-
ical literature on the productivity advantage of foreign firms. A potential explana-
tion is that firms that have the resources to access foreign markets might have an
idiosyncratic advantage in terms of both management and technology (see, for
example, Tomiura 2007) which is reflected in higher productivity levels. Similar
conclusions can be reached by looking at public foreign-owned firms, with even
higher estimated coefficients. Looking instead at domestic public ultimate owner-
ship, results vary across quantiles. Domestic state-owned or state-controlled firms
Table 4. The role of ownership.

Dep. Var. TFP (CD) Dep. Var. TFP (Translog)
Quantiles Quantiles
Ownership OLS 0.1 0.25 0.5 0.75 0.9 Joint equality OLS 0.1 0.25 0.5 0.75 0.9 Joint equality
Private foreign 0.45⁄⁄⁄ 0.33⁄⁄⁄ 0.35⁄⁄⁄ 0.40⁄⁄⁄ 0.51⁄⁄⁄ 0.31⁄⁄⁄ 1.90⁄ 0.30⁄⁄⁄ 0.26⁄⁄⁄ 0.25⁄⁄ 0.22⁄⁄⁄ 0.16⁄⁄⁄ 0.09 2.00⁄
0.05 0.06 0.04 0.06 0.07 0.09 0.10 0.04 0.05 0.03 0.03 0.04 0.06 0.09
Public domestic 0.08⁄⁄⁄ 0.25⁄⁄⁄ 0.122⁄⁄⁄ 0.07⁄⁄ -0.033 -0.22⁄⁄⁄ 9.72⁄⁄⁄ 0.04⁄⁄ 0.21⁄⁄⁄ 0.11⁄⁄⁄ 0.03 0.00 -0.17⁄⁄⁄ 13.95⁄⁄⁄
0.03 0.06 0.04 0.03 0.04 0.07 0.00 0.02 0.04 0.03 0.02 0.02 0.04 0.00
Public foreign 1.13⁄⁄⁄ 1.02⁄⁄⁄ 1.17⁄⁄⁄ 1.15⁄⁄⁄ 0.99⁄⁄⁄ 1.15⁄⁄⁄ 1.67 0.61⁄⁄⁄ 0.69⁄⁄⁄ 0.63⁄⁄⁄ 0.56⁄⁄⁄ 0.50⁄⁄⁄ 0.42⁄⁄⁄ 4.02⁄⁄⁄
0.05 0.1 0.06 0.04 0.09 0.11 0.15 0.03 0.04 0.03 0.04 0.05 0.08 0.00
Constant 4.72⁄⁄⁄ 4.13⁄⁄⁄ 4.55⁄⁄⁄ 4.72⁄⁄⁄ 4.85⁄⁄⁄ 5.91⁄⁄⁄ 4.04⁄⁄⁄ 4.04⁄⁄⁄ 4.35⁄⁄⁄ 4.49⁄⁄⁄ 4.62⁄⁄⁄ 5.83⁄⁄⁄
0.09 0.15 0.12 0.04 0.17 0.4 0.06 0.12 0.08 0.03 0.18 0.38
No. Obs 4005 4005 4005 4005 4005 4005 4005 4005 4005 4005 4005 4005
R2/Pseudo R2 0.2409 0.2489 0.2055 0.1574 0.1380 0.1373 0.2148 0.2482 0.1938 0.1273 0.1103 0.1478
Notes: Base category is Private Domestic. Country and year dummies included in all regressions. CD refers to Cobb-Douglas. Standard errors in italics, based on 100
bootstrap replications. ⁄⁄⁄ Significant at the 1% level, ⁄⁄ significant at the 5% level and ⁄ significant at the 10% level. For the joint equality test, the F-statistic and corre-
sponding p-value are reported.
249
250 C.F. Del Bo
are characterized by higher TFP levels, with respect to their private domestic coun-
terparts, in the first three quantiles considered (first two when using the translog
measure). Only in the 0.90 quantile does the relationship become significantly nega-
tive. Possible explanations may be related to an underlying link between productiv-
ity and other firm characteristics, such as for example size, which in turn could be
related to ownership. For example, less productive public firms could be smaller
municipal companies, which may be subject to more stringent control by voters in
the local constituency (Koh, Berg, and Kenny 1996) or be subject to less stringent
regulation than their private competitors (Kwoka 2002).
In order to gain a better understanding of the relevant TFP determinants in the
European electricity generation sector in the EU in recent years, we now add firm-
level controls, as in equation (5) and verify whether the conclusions related to the
ownership structure vary or not. Interestingly, some results are remarkably stable,
while other findings need to be qualified. Foreign ownership, both for private and
public firms, is still unambiguously associated with higher productivity levels across
the whole TFP distribution, irrespective of which measure (Cobb-Douglas or tran-
slog) is used. However, it is now clear that this relationship is actually stronger in
the higher quantiles. Foreign ownership thus seems to be particularly relevant with
respect to productivity for the most productive firms in the sample, which might be
related to the fact that foreign capital may have acquired the most productive (ex-
ante) domestic firms. Domestic public ownership, on the contrary, is now associated
with lower productivity levels, except in the bottom quantile (statistically significant
only in the translog specification) where higher TFP levels are found with respect
to domestic private firms. The results related to public ownership, however, appear
less stable with respect to foreign ownership, with statistically significant coeffi-
cients only in the upper quantiles, in part helping explain the mixed results found
in previous studies based on mean regressions, as surveyed in Section 2. Control-
ling for firm-specific characteristics, such as size, the size and composition of the
workforce and financial structure thus is relevant and helps explain variations in
TFP levels.
Considering firm-level controls (Table 5), larger firms, as measured by total
assets, are more productive, irrespective of their ownership structure. The estimated
coefficient is also increasing with quantiles, indicating that this characteristic is
more relevant at the right tail of the TFP distribution. The same can be said with
respect to the average wage, which reflects both the number and possibly the skill
level of the employees and is associated with higher TFP levels. In this case, how-
ever, the coefficient is higher in the bottom quantiles and monotonically decreasing,
suggesting perhaps that for more productive firms, the human capital component is
important but less so when compared with technological and capital endowment.
Solvency appears to be mildly related to lower productivity, albeit with a small and
frequently not statistically significant coefficient.
Finally, the regional dimension is added (Table 6), with the inclusion of density
and the aggregate index of quality of government, as in equation (6). The additional
variables, while overall improving the explained variation in the data, do not alter the
conclusions regarding the role of ownership or other firm-level controls as in the pre-
vious discussion. Regional population density, as expected, is positively associated
with TFP values with an increasing associated coefficient in the different quantiles,
albeit rather small. Firms operating in strong regional markets experience higher
productivity levels, reaping the benefits of local externalities and agglomeration
Table 5. Firm-level determinants.

Quantiles Quantiles
Private foreign 0.39⁄⁄⁄ 0.09⁄⁄ 0.09⁄⁄⁄ 0.15⁄⁄⁄ 0.30⁄⁄⁄ 0.39⁄⁄⁄ 5.46⁄⁄⁄ 0.16⁄⁄⁄ 0.12⁄⁄ 0.09⁄⁄⁄ 0.12⁄⁄⁄ 0.13⁄⁄⁄ 0.16⁄⁄ 2.26⁄⁄⁄
0.04 0.03 0.02 0.04 0.06 0.08 0.00 0.03 0.03 0.02 0.02 0.02 0.06 0.06
Public domestic –0.30⁄⁄⁄ 0.02 –0.03⁄ –0.07⁄⁄⁄ –0.15⁄⁄⁄ –0.30⁄⁄⁄ 10.90⁄⁄⁄ –0.08⁄⁄⁄ 0.09⁄⁄⁄ 0.01 –0.02 –0.08⁄⁄⁄ –0.14⁄⁄⁄ 11.33⁄⁄⁄
0.02 0.02 0.02 0.02 0.03 0.04 0.00 0.02 0.03 0.01 0.01 0.02 0.03 0.00
Public Foreign 0.90⁄⁄⁄ 0.30⁄⁄⁄ 0.26⁄⁄⁄ 0.33⁄⁄⁄ 0.63⁄⁄⁄ 0.90⁄⁄⁄ 5.72⁄⁄⁄ 0.23⁄⁄⁄ 0.11⁄⁄⁄ 0.13⁄⁄⁄ 0.14⁄⁄⁄ 0.24⁄⁄⁄ 0.36⁄⁄⁄ 1.30
0.05 0.05 0.03 0.07 0.11 0.15 0.00 0.04 0.03 0.03 0.03 0.08 0.12 0.27
Firm-level
Total assets 0.21⁄⁄⁄ 0.16⁄⁄⁄ 0.17⁄⁄⁄ 0.15⁄⁄⁄ 0.19⁄⁄⁄ 0.21⁄⁄⁄ 4.32⁄⁄⁄ 0.10⁄⁄⁄ 0.11⁄⁄⁄ 0.10⁄⁄⁄ 0.10⁄⁄⁄ 0.11⁄⁄⁄ 0.12⁄⁄⁄ 1.66
0.01 0.01 0.01 0.01 0.01 0.01 0.00 0.01 0.01 0.00 0.00 0.01 0.01 0.15
Wage 0.23⁄⁄⁄ 0.43⁄⁄⁄ 0.40⁄⁄⁄ 0.38⁄⁄⁄ 0.32⁄⁄⁄ 0.23⁄⁄⁄ 3.86⁄⁄⁄ 0.27⁄⁄⁄ 0.37⁄⁄⁄ 0.33⁄⁄⁄ 0.30⁄⁄⁄ 0.25⁄⁄⁄ 0.23⁄⁄⁄ 2.35⁄⁄⁄
0.04 0.04 0.03 0.03 0.04 0.05 0.00 0.03 0.03 0.02 0.03 0.04 0.04 0.05
Solvency –0.55⁄⁄⁄ –0.05 –0.12⁄⁄⁄ –0.20⁄⁄⁄ –0.27⁄⁄⁄ –0.55⁄⁄⁄ 5.36⁄⁄⁄ –0.08⁄⁄⁄ –0.02 –0.04 –0.02⁄⁄⁄ 0.00 –0.04 0.72
0.05 0.49 0.04 0.04 0.06 0.09 0.00 0.04 0.05 0.03 0.03 0.03 0.08 0.58
Constant 2.10⁄⁄⁄ 0.64⁄⁄⁄ 0.88⁄⁄⁄ 0.95⁄⁄⁄ 1.30⁄⁄⁄ 2.10⁄⁄⁄ 1.75⁄⁄⁄ 1.39⁄⁄⁄ 1.74⁄⁄⁄ 1.87⁄⁄⁄ 2.21⁄⁄⁄ 2.87⁄⁄⁄
0.15 0.14 0.08 0.11 0.23 0.4 0.10 0.14 0.08 0.11 0.27 0.26
No. Obs 3841 3841 3841 3841 3841 3841 3841 3841 3841 3841 3841 3841
R2/Pseudo R2 0.6418 0.4685 0.4502 0.4032 0.3603 0.3251 0.4949 0.437 0.4112 0.346 0.2953 0.2799
251
252
Table 6. Regional variables.

C.F. Del Bo

Quantiles Quantiles
Private foreign 0.23⁄⁄⁄ 0.95⁄ 0.94⁄⁄⁄ 0.15⁄⁄⁄ 0.24⁄⁄⁄ 0.28⁄⁄⁄ 1.89⁄ 0.15⁄⁄⁄ 0.10⁄⁄⁄ 0.12⁄⁄⁄ 0.13⁄⁄⁄ 0.13⁄⁄⁄ 0.14⁄⁄ 2.26⁄⁄
0.04 0.04 0.03 0.03 0.06 0.08 0.10 0.03 0.03 0.02 0.02 0.03 0.06 0.06
Public domestic –0.11⁄⁄⁄ 0.03 –0.04⁄⁄ –0.06⁄⁄⁄ –0.17⁄⁄⁄ –0.29⁄⁄⁄ 13.61⁄⁄⁄ –0.08⁄⁄⁄ 0.04⁄⁄ – 0.03⁄⁄ – 0.05⁄⁄ –0.11⁄⁄⁄ –0.11⁄⁄⁄ 10.27⁄⁄⁄
0.02 0.02 0.02 0.02 0.03 0.03 0.00 0.02 0.02 0.01 0.01 0.02 0.03 0.00
Public foreign 0.47⁄⁄⁄ 0.29⁄⁄⁄ 0.25⁄⁄⁄ 0.38⁄⁄⁄ 0.53⁄⁄⁄ 0.88⁄⁄⁄ 4.14⁄⁄⁄ 0.22⁄⁄⁄ 0.19⁄⁄⁄ 0.13⁄⁄⁄ 0.17⁄⁄⁄ 0.19⁄⁄⁄ 0.47⁄⁄⁄ 1.39
0.05 0.5 0.03 0.07 0.09 0.19 0.00 0.04 0.03 0.03 0.03 0.08 0.1 0.23
Firm-level
Total assets 0.20⁄⁄⁄ 0.17⁄⁄⁄ 0.17⁄⁄⁄ 0.18⁄⁄⁄ 0.19⁄⁄⁄ 0.20⁄⁄⁄ 2.07⁄⁄ 0.10⁄⁄⁄ 0.10⁄⁄⁄ 0.09⁄⁄⁄ 0.09⁄⁄⁄ 0.10⁄⁄⁄ 0.10⁄⁄⁄ 1.41
0.01 0.01 0.01 0.01 0.01 0.01 0.08 0.01 0.01 0.01 0.00 0.01 0.01 0.22
Wage 0.27⁄⁄⁄ 0.40⁄⁄⁄ 0.37⁄⁄⁄ 0.35⁄⁄⁄ 0.29⁄⁄⁄ 0.23⁄⁄⁄ 2.65⁄⁄⁄ 0.26⁄⁄⁄ 0.31⁄⁄⁄ 0.28⁄⁄⁄ 0.26⁄⁄⁄ 0.22⁄⁄⁄ 0.22⁄⁄⁄ 2.54⁄⁄⁄
0.04 0.04 0.03 0.04 0.05 0.05 0.03 0.03 0.02 0.03 0.02 0.04 0.06 0.04
Solvency –0.22⁄⁄⁄ –0.05 –0.08⁄⁄ –0.15⁄⁄⁄ –0.23⁄⁄⁄ –0.58⁄⁄⁄ 7.54⁄⁄⁄ –0.06 0.00 – 0.06⁄⁄ – 0.08⁄⁄ –0.04 – 0.14⁄⁄ 0.95
0.05 0.05 0.04 0.04 0.06 0.08 0.00 0.03 0.04 0.03 0.03 0.04 0.07 0.43
Regional-level
Density 0.08⁄⁄⁄ 0.02⁄⁄ 0.04⁄⁄⁄ 0.06⁄⁄⁄ 0.10⁄⁄⁄ 0.12⁄⁄⁄ 5.77⁄⁄⁄ 0.04⁄⁄⁄ 0.00 0.03⁄⁄⁄ 0.04⁄⁄⁄ 0.04⁄⁄⁄ 0.03 5.39⁄⁄⁄
0.01 0.01 0.01 0.01 0.02 0.02 0.00 0.01 0.02 0.01 0.01 0.01 0.02 0.00
Institutions 0.09⁄ 0.00 0.00 0.10⁄⁄⁄ 0.19⁄⁄⁄ 0.12⁄ 4.40⁄⁄⁄ 0.05 –0.05⁄ 0.02 0.04 0.16⁄⁄⁄ 0.10⁄⁄ 7.53⁄⁄⁄
0.09 0.03 0.02 0.04 0.06 0.07 0.00 0.04 0.03 0.02 0.03 0.04 0.04 0.00
Constant 0.81⁄⁄⁄ 0.61⁄⁄⁄ 0.75⁄⁄⁄ 0.73⁄⁄⁄ 0.81⁄⁄⁄ 1.25⁄⁄⁄ 1.52⁄⁄⁄ 1.26⁄⁄⁄ 1.43⁄⁄⁄ 1.54⁄⁄⁄ 1.75⁄⁄⁄ 2.28⁄⁄⁄
0.16 0.017 0.11 0.12 0.2 0.51 0.12 0.11 0.09 0.1 0.22 0.27
N° Obs 3710 3710 3710 3710 3710 3710 3710 3710 3710 3710 3710 3710
R2/Pseudo R2 0.2954 0.4693 0.4517 0.4041 0.3657 0.3324 0.4413 0.4535 0.4027 0.3467 0.314 0.2791
Figure 2. Coefficients over quantiles of firm ownership and regional variables.

Notes: Left panel: Cobb-Douglas TFP. Right panel: Translog TFP. Quantiles are on the horizontal axis.
254 C.F. Del Bo
economies, as suggested by regional economic studies and this positive effect is

enhanced at higher productivity levels. It thus appears that more productive firms are
able to reap greater benefits from operating in a dense and active marketplace, while
lower productivity firms are relatively lacking the capacity to benefit from higher
density. Regional institutional quality, as captured by the aggregate index of QoG,
exhibits a positive relationship with firm-level productivity (with the exception of the
first quantile with the translog TFP measure) which is increasing across quantiles. A
good local institutional setting, controlling for other firm-level and regional determi-
nants is thus a positive influencing factor for firm-level TFP in the electricity genera-
tion sector for the most productive firms. Efficient firms are thus better equipped to
take advantage of regional institutional quality with respect to less productive firms,
possibly due to internal characteristics and qualities that allow external positive con-
ditions to influence firm-level economic behavior. Good institutions affect firm-level

productivity by providing clear and well defined rules of the game, offering a more
stable and transparent business environment and reducing volatility and space-spe-
cific risk. Regions with sound institutions governing, in particular, the public sector
could also represent more fertile soil for the existence and the good management of
public firms. While this particular hypothesis cannot be fully tested with the data at
hand, since only the aggregate regional institutional indicator is available, this could
represent an interesting research topic for future investigations, which would bring
together institutional and regional issues in relation to ownership.
A graphical representation of the estimated coefficients associated with owner-
ship and regional variables at different quantiles is presented in Figure 2.8 OLS esti-
mates (indicated by horizontal lines) and confidence intervals for quantile and least
squares coefficients are also included. The left panel shows the results for the
Cobb-Douglas specification, while the translog specification is in the right panel.
From the top, the variables considered are: private foreign, public foreign, public
domestic, regional institutional quality and density. The only difference between the
two models is related to the behavior of the private foreign dummy, which appears
to be more precisely modeled in the Cobb-Douglas specification, since confidence
intervals widen at the extreme upper quantile for this variable in the translog speci-
fication. A first glance confirms that OLS results could over- or understate the rela-
tionship between the variables of interest and productivity at the different quantiles,
thus not providing a complete picture. With reference to the left panel (Cobb-Doug-
las approach), the positive association between private foreign ownership and TFP
is increasing in quantiles, as is public foreign ownership. On the other hand, as
already commented, the initially positive association with domestic public owner-
ship decreases and eventually becomes negative from the lower to the upper quan-
tiles. Interestingly, the estimated coefficient on regional institutional quality is
increasing up to the 0.90 quantile, and so is the estimated density coefficient, indi-
cating the importance of the regional dimension.
5.2. Stochastic frontier analysis (SFA)

As a consistency check, estimates of the first step firm-level TFP are obtained by
means of SFA, which assumes that the stochastic production frontier for a given
industry (in this case electricity generation) is expressed in terms of inputs, a random
error component and a time varying technical inefficiency component, which
describes deviations below the optimal output level (Aigner, Lovell, and Schmidt
Table 7. SFA and ownership.
Dep. Var. TFP (Frontier) Quantiles

Ownership OLS 0.1 0.25 0.5 0.75 0.9 Joint
equality
Private 0.06⁄⁄⁄ 0.38⁄⁄⁄ 0.25⁄⁄⁄ 0.24⁄⁄⁄ 0.42⁄⁄⁄ 0.25⁄⁄⁄ 12.31⁄
Foreign
0.01 0.07 0.04 0.04 0.04 0.06 0.00
Public –0.02⁄⁄⁄ 0.39⁄⁄⁄ 0.96⁄ –0.01 – 0.07⁄⁄ –0.27⁄⁄⁄⁄ 24.88⁄⁄⁄
Domestic
0.00 0.04 0.03 0.02 0.03 0.06 0.00
Public 0.16⁄⁄⁄ 0.38⁄⁄⁄ 0.62⁄⁄⁄ 0.61⁄⁄⁄ 0.65⁄⁄⁄ 0.62⁄⁄⁄ 13.95⁄⁄⁄
Foreign
0.01 0.04 0.03 0.04 0.07 0.08 0.00
Constant 0.28⁄⁄⁄ –2.16⁄⁄⁄ –1.81⁄⁄⁄ –1.66⁄⁄⁄ –1.23⁄⁄⁄ –0.10⁄⁄⁄

0.03 0.15 0.04 0.07 0.19 0.44
No. Obs 4001 4001 4001 4001 4001 4001

R2/Pseudo R2 0.1609 0.2946 0.2291 0.1622 0.1727 0.1861
Notes: Base category is Private Domestic. Country and year dummies included in all regressions. Stan-
dard errors in italics, based on 100 bootstrap replications. ⁄⁄⁄ Significant at the 1% level, ⁄⁄ significant
at the 5% level and ⁄ significant at the 10% level. For the joint equality test, the F-statistic and corre-
1977; Meeusen and van den Broeck 1977; Kumbhakar 1990; Battese and Coelli
1992). Stochastic frontier models assume that firms do not fully utilize existing
technology due to a set of institutional and organizational factors, which lead to ineffi-
ciencies in production processes and this is modeled by introducing a negative error
term in the production function, which brings production below its efficiency level.
The initial relationship between ownership and TFP (Table 7) mimics the results
presented in Table 4, with positive estimated coefficients associated with foreign
ownership (both private and state-owned) and an initially positive value for public
domestic ownership in the first two quantiles examined, which then becomes nega-
tive and statistically significant.
Adding firm-level controls (Table 8) does not alter our main conclusions sub-
stantially, once again indicating a positive association between TFP and foreign
ownership and with public domestic ownership only in the 0.10 and 0.25 quantiles.
Size (as measured by total assets), the quality of the labor force (as indicated by the
average wage level) both exhibit positive and significant coefficients, decreasing
across quantiles. Solvency is negatively related to performance only in the upper
quantiles.
Finally, the regional dimension adds to our understanding of the determinants of
firm-level productivity in the European electricity supply sector for the middle and
upper quantiles of the distribution (Table 9). Both density and institutional quality
are not statistically significant at the two bottom quantiles, suggesting that lower
productivity firms do not benefit from external positive factors due to intrinsic inef-
ficiencies. On the contrary, these regional determinants are relevant for more pro-
ductive firms, with an increasing coefficient, across quantiles, for density. The most
productive firms in the sample are thus better equipped to further increase their effi-
ciency levels in favorable regional markets and environments.
256
Table 8. SFA and firm-level determinants.

Ownership OLS 0.1 0.25 0.5 0.75 0.9 Joint equality
C.F. Del Bo
Private Foreign 0.04⁄⁄⁄ 0.22⁄⁄⁄ 0.18⁄⁄⁄ 0.20⁄⁄⁄ 0.27⁄⁄⁄ 0.23⁄⁄⁄ 6.01⁄⁄⁄

0.01 0.03 0.03 0.03 0.03 0.06 0.00
Public Domestic –0.04⁄⁄⁄ 0.17⁄⁄⁄ 0.05⁄⁄ –0.03 –0.13⁄⁄⁄ –0.24⁄⁄⁄ 18.76⁄⁄⁄
0.01 0.02 0.03 0.02 0.02 0.04 0.00
Public Foreign 0.08⁄⁄⁄ 0.18⁄⁄⁄ 0.34⁄⁄⁄ 0.27⁄⁄⁄ 0.45⁄⁄⁄ 0.51⁄⁄⁄ 11.16⁄⁄⁄
0.01 0.05 0.03 0.03 0.07 0.07 0.00
Firm-level
Total Assets 0.02⁄⁄⁄ 0.10⁄⁄⁄ 0.06⁄⁄⁄ 0.05⁄⁄⁄ 0.04⁄⁄⁄ 0.03⁄⁄⁄ 8.22⁄⁄⁄
0.00 0.01 0.01 0.01 0.01 0.01 0.00
Wage 0.05⁄⁄⁄ 0.48⁄⁄⁄ 0.39⁄⁄⁄ 0.37⁄⁄⁄ 0.35⁄⁄⁄ 0.24⁄⁄⁄ 4.23⁄⁄⁄
0.01 0.04 0.03 0.03 0.04 0.05 0.00
Solvency –0.06⁄⁄⁄ 0 –0.03 –0.04 –0.18⁄⁄⁄ –0.31⁄⁄⁄ 6.49⁄⁄⁄
0.01 0.05 0.03 0.04 0.04 0.07 0.00
Constant –0.10⁄⁄⁄ –4.44⁄⁄⁄ –3.82⁄⁄⁄ –3.72⁄⁄⁄ –3.36⁄⁄⁄ –2.58⁄⁄⁄

0.01 0.12 0.2 0.11 0.23 0.32
No. Obs 3837 3837 3837 3837 3837 3837

R2/Pseudo R2 0.1509 0.4387 0.3535 0.2616 0.26 0.2682
Notes: Base category is Private Domestic. Country and year dummies included in all regressions. Standard errors in italics, based on 100 bootstrap replications. ⁄⁄⁄ Sig-
nificant at the 1% level, ⁄⁄ significant at the 5% level and ⁄ significant at the 10% level. For the joint equality test, the F-statistic and corresponding p-value are
reported.
Table 9. SFA and regional variables.

Ownership OLS 0.1 0.25 0.5 0.75 0.9 Joint equality
Private Foreign 0.04⁄⁄⁄ 0.22⁄⁄⁄ 0.19⁄⁄⁄ 0.23⁄⁄⁄ 0.23⁄⁄⁄ 0.18⁄⁄⁄ 6.69⁄
0.01 0.03 0.04 0.02 0.03 0.07 0.00
Public Domestic –0.04⁄⁄⁄ 0.17⁄⁄⁄ 0.07⁄⁄⁄ –0.13 –0.13⁄⁄⁄ –0.25⁄⁄⁄ 30.49⁄⁄⁄
0.01 0.02 0.03 0.02 0.03 0.04 0.00
Public Foreign 0.08⁄⁄⁄ 0.17⁄⁄⁄ 0.37⁄⁄⁄ 0.29⁄⁄⁄ 0.38⁄⁄⁄ 0.44⁄⁄⁄ 11.19⁄⁄⁄
0.01 0.06 0.04 0.04 0.08 0.09 0.00
Firm-level
Total Assets 0.02⁄⁄⁄ 0.03⁄⁄⁄ 0.04⁄⁄⁄ 0.06⁄⁄⁄ 0.07⁄⁄⁄ 0.10⁄⁄⁄ 14.87⁄⁄
0.00 0.01 0.01 0.01 0.01 0.01 0.00
Wage 0.05⁄⁄⁄ 0.48⁄⁄⁄ 0.37⁄⁄⁄ 0.35⁄⁄⁄ 0.35⁄⁄⁄ 0.25⁄⁄⁄ 3.48⁄⁄⁄
0.01 0.04 0.04 0.03 0.05 0.05 0.00
Solvency –0.05⁄⁄⁄ 0 –0.02 –0.02 –0.16⁄⁄⁄ –0.25⁄⁄⁄ 8.05⁄⁄⁄
0.01 0.05 0.04 0.04 0.05 0.06 0.00
Regional-level
Density 0.02⁄⁄⁄ 0 0 0.02⁄⁄ 0.03⁄⁄ 0.04⁄⁄⁄ 8.77⁄⁄⁄
0.00 0.01 0.01 0.01 0.02 0.01 0.00
Institutions 0.02⁄⁄⁄ 0.02 0.00 0.07⁄⁄ 0.10⁄⁄ 0.06⁄⁄⁄ 3.12⁄⁄⁄
0.01 0.04 0.02 0.04 0.05 0.02 0.00
Constant –0.23⁄⁄⁄ –4.44⁄⁄⁄ –3.82⁄⁄⁄ –3.72⁄⁄⁄ –3.36⁄⁄⁄ –2.58⁄⁄⁄

0.04 0.12 0.2 0.11 0.23 0.32
No. Obs 3710 3710 3710 3710 3710 3710

R2/Pseudo R2 0.1518 0.4693 0.4517 0.4041 0.3657 0.3324
Notes: Base category is Private Domestic. Country and year dummies included in all regressions. Standard errors in italics, based on 100 bootstrap replications. ⁄⁄⁄Sig-
nificant at the 1% level, ⁄⁄significant at the 5% level and ⁄significant at the 10% level. For the joint equality test, the F-statistic and corresponding p-value are reported.
257
258 C.F. Del Bo
Figure 3. SFA and coefficients over quantiles of firm ownership and regional variables.
Notes: Quantiles are on the horizontal axis.
By plotting the estimated coefficients from quantile regressions for the owner-
ship and regional variables, along with confidence intervals and OLS estimates, sev-
eral interesting results emerge (see Figure 3). By using a translog production
function, estimated with MLE and allowing for technical inefficiency (SFA), a
clearer picture of the potential misspecification of simple OLS estimate as compared
to Figure 3 emerges.
In the bottom (upper) quantiles, foreign ownership runs the risk of being over
(under) estimated with OLS, while the contrary is true for public domestic owner-
ship. Both regional variables instead display coefficients that are below the OLS
estimate (up to the 0.75 quantile) and are increasing along the TFP distribution.
6. Conclusions
Several contributions in the empirical literature have analyzed the privatization and
overall reform trend in the electricity industry, and have reached, mainly in single
country studies, contrasting conclusions on its economic impact. By focusing on a
homogeneous subsector, namely generation, in a cross-country European perspec-
tive, over a medium-run time period, this paper has shed light on the relationships
between the reform process and firm level productivity, further qualified by the
inclusion of regional institutional quality and economic characteristics. The main
findings provide support for the existence of a significant relationship between a rel-
evant outcome of reforms in the electricity supply sector, namely the entry of for-
eign firms and the presence of both public- and privately-owned entities, and firms’
total factor productivity, and show that this association varies at different quantiles
of the productivity distribution. Further results stress the importance of regional
context conditions for firm activity.
The empirical analysis has shown that the reform process of the European elec-
tricity generation sector appears to have been effective in promoting market opening
and foreign entry, and in allowing private firms to operate in a context of mixed
market structure with public entities. The presence of a significant number of for-
eign-owned firms is an indication of an ongoing process of market liberalization,

while the coexistence of both private and public firms in this segment of the elec-
tricity market suggests a more complex path in the privatization process. The unam-
biguously positive association between productivity and foreign ownership is in line
with a vast literature in international economics and can be explained by two non-
mutually exclusive considerations. On the one hand, foreign ownership might entail
exposure to different, and potentially more successful, business models and prac-
tices, thus leading once domestically-owned firms to become more productive. On
the other hand, it could well be the case that foreign firms might enter a foreign
market (or enhance their production possibilities) by acquiring the most productive
domestic firms. Both explanations can be backed by the empirical analysis pre-
sented, which in general is supportive of the view that the liberalization process in
the EU is progressing, and significant steps towards an internal electricity market
are being made. To further discriminate between these possible explanations, a
potential research avenue entails collecting more detailed data for a longer period of
time on electricity generating firms, sampling those that have been acquired by (or
have merged with) foreign firms and, as a control group, those that have remained
domestically owned.
The association between public ownership and productivity, instead, varies
across quantiles and goes from positive, in the lower TFP quantiles, to negative in
the right tail of the distribution. This result, coupled with the fact that public owner-
ship still represents a relevant ownership structure for electricity generating
companies in the EU sample, suggests that the link between private or public own-
ership with TFP is not straightforward. The negative sign in the higher quantiles
could be explained by an intrinsic productivity disadvantage of public firms or, in
parallel to the discussion of foreign ownership, as the result of having privatized
the most efficient public firms, in order to maximize the revenues of privatization
for public finances.
Finally, the positive and statistically significant coefficient associated with regio-
nal quality of government highlights the importance of intangible and institutional
factors for firm-level performance and the relevance of other regional factors points
to the role of the local market environment in shaping individual firms’ responses
and behavior. This result is statistically significant only for the most productive
firms in the sample, suggesting that already efficient firms are more able to enjoy
the advantages of a well-developed local market and high quality of institutions
environment, while less productive firms are hampered in their ability to reap the
benefits of external conditions due to intrinsic inefficiency internal factors. This
260 C.F. Del Bo
conjecture could be explored in more detail by analyzing both private and public
firms in different regional institutional environments, collecting additional informa-
tion on the specific institutional differences and singling out the relevant aspects
that explain the positive association between public firms’ productivity and regional
institutional quality.
Taken together, these results can be read as suggesting the coexistence of differ-
ent institutional arrangements, both internal and external to the firm, that are related
to performance and production efficiency with different implications across quantiles
of the TFP distribution. A more precise evaluation of the desirability of different
ownership structures, however, should move beyond simple firm-level measures and
encompass a broader view, by examining the impact on measures of social welfare.
Acknowledgements
The following research grant: Dote Ricercatori: FSE, Regione Lombardia is gratefully
acknowledged. The author wishes to thank two anonymous referees and participants at the
XXIV SIEP Conference, 2012 for helpful comments and suggestions. The usual disclaimer
applies.
Notes
1. Belgium, Poland and the Slovak Republic.
2. See Del Bo and Florio (2012).
3. Only the resulting aggregate index at regional level is available and is used in the
present empirical analysis.
4. These impressions are validated by formal statistical t-tests comparing private and public
firms, on one hand, and foreign and domestic ones on the other. Results available upon
request.
5. Results available upon request.
6. http://www.privatizationbarometer.net/
7. Results available upon request.
8. The plotted coefficients are the result of the estimation of equation (6).
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264
Appendix
Table A1: List of countries and regions in the sample.
Countries Regions
C.F. Del Bo
Austria AT12 AT13 AT21 AT22 AT31 AT34

Belgium BE10 BE21 BE22 BE23 BE24 BE25 BE31 BE32 BE33 BE35
Bulgaria BG31 BG32 BG33 BG34 BG41 BG42
Czech Republic CZ01 CZ02 CZ03 CZ04 CZ05 CZ06 CZ07 CZ08
Estonia EE00
Finland FI13 FI18 FI19 FI1A FI20
France FR10 FR41 FR42 FR61 FR62 FR63 FR71 FR81 FR82
Germany DE10 DE11 DE12 DE13 DE14 DE21 DE22 DE23 DE25 DE26 DE27 DE41
DE42 DE50 DE71 DE72 DE73 DE80 DE91 DE92 DE93 DE97 DE98 DEA1
DEA2 DEA3 DEA4 DEA5 DEB1 DEB3 DEC0 DED DEE0 DEF0 DEG0
Hungary HU10 HU21 HU22 HU23 HU31 HU32 HU33
Italy ITC1 ITC2 ITC4 ITD1 ITD2 ITD3 ITD4 ITD5 ITE1 ITE2 ITE3 ITE4
ITF1 ITF3 ITF4 ITF5 ITF6 ITG1 ITG2
Luxembourg LU00
Netherlands NL31
Poland PL11 PL12 PL21 PL22 PL31 PL32 PL33 PL34 PL41 PL42 PL43 PL51
PL52 PL61 PL62 PL63
Portugal PT11 PT16 PT17 PT18 PT20 PT30
Slovakia SK01 SK03
Slovenia SI01 SI02
Spain ES11 ES12 ES13 ES21 ES22 ES23 ES24 ES30 ES41 ES42 ES43 ES51
ES52 ES53 ES61 ES62 ES63 ES70
Sweden SE11 SE12 SE21 SE22 SE23 SE32 SE33
Note: Codes for NUTS2 regions from Eurostat (http://epp.eurostat.ec.europa.eu/portal/page/portal/nuts_nomenclature/introduction).

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On: 01 January 2015, At: 09:29

International Review of Applied

Productivity in electricity generation:

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Productivity in electricity generation: The role of ﬁrm ownership

The electricity generation sector is considered the most competitive segment of

1. Introduction and motivation

Ó 2013 Taylor & Francis

The cross-country perspective allows moving beyond single-country studies and

agglomeration and the regional environment is ascertained while controlling for

regulatory and governance framework. De Rosa, Gooroochurn, and Görg (2010)

3. Data and descriptive statistics

(Nomenclature of territorial units for statistics) level, allowing matching with

EQIrc ¼ WGIc þ ðRqogrc CRqogc Þ ð1Þ

Table 1. Descriptive statistics.

Sample Private domestic Private foreign Public domestic Public foreign

Employees 261 287 272 341 651 834 614 701

Figure 1. Ownership and institutions.

4.1. Empirical model: Productivity measures and determinants

TFP is estimated from a Cobb-Douglas production function of the following

yit ¼ b0 þ b1 kit þ b2 lit þ b3 mit þ eit ð2Þ

Christensen 1973), of the following form:

A possible drawback of this estimation strategy is related to a simultaneity problem

Table 2. Correlation between different TFP measures.

TFP CD TFP Trans TFP Front

TFPit ¼ b0 þ b1 private foreign þ b2 public domestic þ b3 public foreign þ eit ð4Þ

TFPit ¼ b0 þ b1 private foreign þ b2 public domestic þ b3 public foreign þ b4 total assetsþ

TFPit ¼ b0 þ b1 private forieign þ b2 public domestic þ b3 public foreign þ b4 total assetsþ

Table 3. Total Factor Productivity and ownership.

Private domestic Private foreign Public domestic Public foreign

4.2. Quantile regressions

general conditions. Estimates of the variance-covariance matrix are obtained using

5. Results and discussion

Table 4. The role of ownership.

Table 5. Firm-level determinants.

Table 6. Regional variables.

Dep. Var. TFP (CD) Dep. Var. TFP (Translog)

Figure 2. Coefﬁcients over quantiles of ﬁrm ownership and regional variables.

economies, as suggested by regional economic studies and this positive effect is

ditions to influence firm-level economic behavior. Good institutions affect firm-level

5.2. Stochastic frontier analysis (SFA)

Table 7. SFA and ownership.

Dep. Var. TFP (Frontier) Quantiles

0.01 0.04 0.03 0.04 0.07 0.08 0.00

Constant 0.28⁄⁄⁄ –2.16⁄⁄⁄ –1.81⁄⁄⁄ –1.66⁄⁄⁄ –1.23⁄⁄⁄ –0.10⁄⁄⁄

No. Obs 4001 4001 4001 4001 4001 4001

Table 8. SFA and ﬁrm-level determinants.

Dep. Var. TFP (Frontier) Quantiles

Private Foreign 0.04⁄⁄⁄ 0.22⁄⁄⁄ 0.18⁄⁄⁄ 0.20⁄⁄⁄ 0.27⁄⁄⁄ 0.23⁄⁄⁄ 6.01⁄⁄⁄

Constant –0.10⁄⁄⁄ –4.44⁄⁄⁄ –3.82⁄⁄⁄ –3.72⁄⁄⁄ –3.36⁄⁄⁄ –2.58⁄⁄⁄

No. Obs 3837 3837 3837 3837 3837 3837

Table 9. SFA and regional variables.

Dep. Var. TFP (Frontier) Quantiles

Constant –0.23⁄⁄⁄ –4.44⁄⁄⁄ –3.82⁄⁄⁄ –3.72⁄⁄⁄ –3.36⁄⁄⁄ –2.58⁄⁄⁄

No. Obs 3710 3710 3710 3710 3710 3710

eign-owned ﬁrms is an indication of an ongoing process of market liberalization,