The Corporatization and Commercialization of Local Body Entities: A Study of Reported Financial Performance

Authors


  • Jill Hooks (j.j.hooks@massey.ac.nz) is an Associate Professor and Chris van Staden a Senior Lecturer in the School of Accountancy at Massey University.

  • The authors thank a number of people for their feedback on this paper: participants at research seminars at the University of Pretoria (South Africa) and Massey University; discussants and participants at the Accounting and Finance Association of Australia and New Zealand Conference, 2004, and the Asia Pacific Interdisciplinary Research in Accounting Conference, 2004. We also thank the anonymous reviewers whose thoughtful comments have greatly improved our paper.

Abstract

This research examines the financial performance of three entities over a fifteen-year period. The aim is to determine the influence of corporatization, commercialization and ownership form on the reported financial performance of the three entities. Underpinning this is the premise, derived from the literature, that financial performance and funding can be expected to change following corporatization and commercialization and will reflect the effects of the form of corporate ownership.

A comparison of four performance measures shows that the reported financial performance of the entities improved following corporatization and that their gearing changed. Although the entities were initially similar and faced the same regulatory changes, there were definite differences in the resulting financial performance and gearing between the three entities. In general, by the end of the study period the privatized company was the largest and the one with the highest gearing, the highest ROA and the highest profit margin, whereas the public (council-owned) company was the smallest and had the lowest profitability. The trust-owned company performed in between these two, but on average its performance was closer to that of the public company. The study concludes that corporatization, commercialization and ownership form influenced financial performance and the level of debt funding.

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