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Firm's profitability and regulation in water and network industries: An empirical analysis

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  • Reynaud, Arnaud
  • Thomas, Alban

Abstract

The profitability of a firm is a highly complex concept, as it results from firms' decisions on investment and production plans, but also from constraints beyond their control (economic regulation, level of competition, economic growth). We analyze the profitability of firms in the water industry by focusing on the impact of economic regulation and the economic environment. The objective is to determine empirical regularities which could explain profitability. Using a panel of firms from developed and transition countries, we show that the profitability of firms in the water sector is in line with that in other network industries. Profitability varies greatly depending on the chosen measure of profitability, firm's size, the economic environment and the characteristics of regulation in place are essential to understand and explain firm's profitability. In particular, being regulated by a price-cap scheme appears to be an important determinant of profitability.

Suggested Citation

  • Reynaud, Arnaud & Thomas, Alban, 2013. "Firm's profitability and regulation in water and network industries: An empirical analysis," Utilities Policy, Elsevier, vol. 24(C), pages 48-58.
    • Handle: RePEc:eee:juipol:v:24:y:2013:i:c:p:48-58
    DOI: 10.1016/j.jup.2012.07.002
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    Cited by:

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    2. Lin, Boqiang & Xie, Yongjing, 2024. "Driving renewable energy innovation investments: Is venture capital a novel strategic choice? Evidence from China," Renewable Energy, Elsevier, vol. 237(PC).
    3. Lee, Changyen & Cheng, Chun-Fa & Chuang, Min-Ta & Hsu, Wei-Chieh & Chen, Yen-Hung & Cheng, Kuo-Tai, 2018. "How transparency and accountability matter in regulating the Taiwan Water Supply Corporation," Utilities Policy, Elsevier, vol. 52(C), pages 50-58.
    4. Mocholi-Arce, Manuel & Sala-Garrido, Ramon & Molinos-Senante, Maria & Maziotis, Alexandros, 2023. "Profit productivity change in the English and Welsh water sector: Impact of the price reviews," Utilities Policy, Elsevier, vol. 82(C).
    5. Zouaghi, Ferdaous & Hirsch, Stefan & Garcia, Mercedes Sanchez, 2016. "What Drives Firm Profitability? A Multilevel Approach To The Spanish Agri-Food Sector," 56th Annual Conference, Bonn, Germany, September 28-30, 2016 244762, German Association of Agricultural Economists (GEWISOLA).
    6. Romano, Giulia & Guerrini, Andrea & Senoner, Thomas, 2020. "Establishing a new water tariff method that complies with european principles and respects statutory autonomy: The case of South Tyrol," Utilities Policy, Elsevier, vol. 64(C).
    7. Yeny Esperanza Rodríguez Ramos & John William Rosso Murillo, 2021. "The Profitability of Electricity, Oil, and Gas Utilities in America: An Analysis Focused on Colombia," Revista Facultad de Ciencias Económicas, Universidad Militar Nueva Granada, vol. 29(1), pages 27-48, March.
    8. Ferreira Savoia, José Roberto & Securato, José Roberto & Bergmann, Daniel Reed & Lopes da Silva, Fabiana, 2019. "Comparing results of the implied cost of capital and capital asset pricing models for infrastructure firms in Brazil," Utilities Policy, Elsevier, vol. 56(C), pages 149-158.
    9. à rpád-Zoltán Fulop & Kinga-Erzsébet Bako, 2020. "The Cost Equation of Sewage Services in Romania," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(2), pages 932-938, December.
    10. Isaac Kwame Essien Obeng, 2016. "Delaying payments after the financial crisis: evidence from EU companies," MENDELU Working Papers in Business and Economics 2016-66, Mendel University in Brno, Faculty of Business and Economics.
    11. Carvalho, Anne Emília Costa & Sampaio, Raquel Menezes Bezerra & Sampaio, Luciano Menezes Bezerra, 2023. "The impact of regulation on the Brazilian water and sewerage companies’ efficiency," Socio-Economic Planning Sciences, Elsevier, vol. 87(PA).
    12. Romano, Giulia & Guerrini, Andrea, 2014. "The effects of ownership, board size and board composition on the performance of Italian water utilities," Utilities Policy, Elsevier, vol. 31(C), pages 18-28.

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    More about this item

    Keywords

    Water utilities; Network industries; Regulation; Profitability; ROE; Net margin;
    All these keywords.

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • L9 - Industrial Organization - - Industry Studies: Transportation and Utilities
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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