Inefficiency of public road transport and internal corporate governance mechanisms

Abstract

The aim of this paper is to determine the incidence of internal corporate governance on the efficiency of public transport operators. We use a stochastic analysis frontier model of a sample of 54 public road transport firms, during the period of 2000–2011. We also explain the inefficiency of public transport operators by the internal corporate governance. The stochastic frontier approach is used to assess firms’ efficiency, and also to identifying factors explaining inefficiency. To our knowledge, this is the first research that examines the interrelations among ownership, board and manager characteristics and firm efficiency in a sample of public road transport operators. These governance characteristics, designed to maximise efficiency are operationalised in terms of board characteristics, ownership structure and CEO characteristics. For corporate governance mechanisms, firms with larger board size are inefficient. More specifically, our findings show that there is a positive correlation between the proportion of independent directors on the board and firm efficiency. We also find that firm efficiency is viewed as a proxy for CEO effort and, therefore, CEO's tenure has a positive impact on efficiency.