Factors affecting the performance of water utility companies

Purpose – The purpose of this paper is to carry out an analysis of Italian water utility companies to determine whether their performance was related to certain relevant variables that have been broadly discussed in the existing literature. Among these are ownership structure, size and diversification. In addition, the paper considers another variable – the geographical location. Design/methodology/approach – The paper reviewed the annual financial statements of 80 Italian water utility companies between 2004 and 2008. It also obtained data regarding tariffs, volumes supplied and population served from Conviri, the Italian national authority for water. Finally, the paper discusses the significant differences among clusters, using parametric statistic methods. Findings – It was found that ownership structure, size, diversification and geographical location had an impact on the performance of water utility companies, although with different degrees of significance. Research limitations/implications – Further studies are necessary in order to improve the way that performance of water utilities is assessed. First of all, it might be helpful to improve our data categories, adding financial data, tariffs, volumes supplied and population served for more than one year and obtaining segmental reports for multi-utilities. In addition, it would be interesting to apply other methods, such as DEA analysis, to confirm our research findings. Practical implications – For a local authority it is convenient to entrust water services to publicly owned companies because they apply lower tariffs and make higher investments pro capita on the pipe network. Moreover, since economies of scale and scope exist, a company’s growth and diversification should be encouraged. Social implications – In Italy the water industry is currently the focus of a vast political debate. As a matter of fact, a recent law (n. 133/2008 article 23-bis modified in November 2009) encourages private administration of this industry. The results led to an improvement in the debate on the strategic choices and organizational structure of water utilities, giving helpful suggestions to policy makers and local authorities for developing future strategies. Originality/value – The research findings improve the existing literature on performance assessment regarding water utilities, for the first time focusing on the Italian context, where companies with different features coexist: public and private utilities, small, medium and large companies as well as mono and multi-utilities.