Publicly Owned Enterprises (POEs) in Kosovo are present largely in the market, with a focus on sectors such as electricity, railways, telecommunications, waste management, etc. This presence is followed by the constant need for subsidies from the government and weak financial and commercial performance. POEs in Kosovo are faced with numerous challenges including weak governance and management. Agency Theory is used widely as a tool with which to explain governance and functioning of organisations and companies. In addition, Agency Theory is used to explore relations between stakeholders in politics and the economy.
This study first elaborates upon the applicability of Principal–Agent Theory in POEs in Kosovo and then identifies the presence of principal–agent problems and identifies the nexus between such problems and poor performance of POEs. Identification of principal–agent problems may help to identify the reason for poor performance of POEs and the lack of transparency, accountability and supervision. POEs are subsidised by the state on an annual basis, which makes the identification of problems in having profitable POEs important for public interests, too. Such importance is due not only to the fact that POEs are financed by taxpayers but also to the fact that they are supposed to provide services in public interests by being self-sustainable and profitable for the government as a shareholder.
The study aims to conclude that principal–agent problems such as capture, rent-seeking, moral hazard, information asymmetry and adverse selection are present in POEs in Kosovo, and that they have a negative impact on their performance. Such principal–agent problems and their negative performance may also be influenced by gaps in legislation and weak law enforcement.
Contents
1 INTRODUCTION
1.1 BACKGROUND
1.2 RESEARCH PROBLEM
1.3 PREVIOUS RESEARCH ASSESMENT
1.4 RESEARCH METHODOLOGY
1.4.1 Sampling
1.4.2 Data collection and analysis
1.5 OUTLINE
2 AGENCY THEORY AND AGENCY LAW
2.1 AGENCY THEORY AS RATIONAL CHOICE
2.1.1 Definition of Rationality
2.1.2 Rational Choice Theory
2.1.3 Resourceful Evaluative Maximising Model (REMM)
2.1.4 Pain Avoidance Model
2.1.5 Public Choice
2.2 PRESANTATION OF THE AGENCY THEORY
2.2.1 Theoretical Approaches to Agency Theory
2.2.2 The Positive Theory of Agency
2.2.3 Principal–Agent Theory
2.2.4 Principal–Agent Problems (PAPs)
2.2.5 Applicability of Agency Theory in Public Enterprises
2.3 THE LAW OF AGENCY
2.3.1 Relationship between the Principal and the Agent
2.3.2 Agency Law in Kosovo and Slovenia
2.4 CONCLUSION
3 PUBLIC ENTERPRISES IN KOSOVO
3.1 HISTORICAL PERSPECTIVE OF POEs
3.2 PUBLIC ENTERPRISES IN KOSOVO
3.2.1 First Period under Yugoslav Federation
3.3.2 Second Period (1999–2008)
3.3 LEGAL AND INSTITUTIONAL FRAMEWORK
3.3.1 Constitution of the Republic of Kosovo
3.3.2 Law on Public Enterprises
3.3.3 Law on Business Organizations
3.3.4 Law on Railways
3.4 INSTITUTIONAL FRAMEWORK
3.4.1 Government
3.4.2 Ministry of Economic Development
3.5 ORGANISATION AND CORPORATE STRUCTURE OF POEs
3.5.1 Establishment of Public Enterprises
3.5.2 Types of Public Enterprises
3.5.3 Ownership of Public Enterprises
3.5.4 Management and Governance of Public Enterprises
3.5.5 Compliance with OECD Principles on Corporate Governance
3.6 CONCLUSION
4 PRINCIPAL-AGENT PROBLEMS IN PUBLIC ENTERPRISES
4.1 PRINCIPAL-AGENT RELATIONSHIP IN PUBLIC ENTERPRISES
4.1.1 Agent’s Duties
4.2 POLITICAL AND ECONOMIC ASPECT OF THE PRINCIPAL-AGENT RELATIONSHIP
4.2.1 Principal–Agent Relations in Kosovo POEs
4.3 PRINCIPAL-AGENT PROBLEMS
4.3.1 Capture
4.3.2 Rent-seeking
4.3.3 Moral Hazard
4.3.4 Information Asymmetry
4.3.5 Adverse Selection
4.4 PRINCIPAL-AGENT PROBLEMS IN KOSOVO POEs
4.4.1 Overview of Central POEs Subject of this Study
4.4.2 Capture
4.4.3 Rent-seeking
4.4.4 Moral Hazard
4.4.5 Information Asymmetry and Adverse Selection
4.5 PERFORMANCE OF POEs
4.6 IMPACT OF PRINCIPAL-AGENT PROBLEMS ON COMMERCIAL PERFORMANCE OF KOSOVO POEs
4.6.1 Budget Implications
4.6.1.2 Revenues
4.6.2 Employment
4.7 CONCLUSION
5 RESULTS AND CONCLUSION
5.1 STUDY RESULTS
5.1.1 Presence of Principal–Agent Problems in POEs in Kosovo
5.1.2 Negative Impact of Principal–Agent Problems on Performance of POEs
5.1.3 Discussion
5.2 CONTRIBUTIONS OF THE STUDY
5.3 FUTURE RESEARCH
5.4 CONCLUSION
Research Objectives and Themes
This thesis examines the applicability of Agency Theory to Publicly Owned Enterprises (POEs) in Kosovo, specifically investigating how principal–agent problems influence their commercial and financial performance. The research aims to identify evidence of issues such as capture, rent-seeking, moral hazard, information asymmetry, and adverse selection, while also addressing gaps in legislation and law enforcement that exacerbate these problems.
- Theoretical application of Agency Theory and rational choice models in public sector governance.
- Empirical analysis of principal–agent problems within Kosovo’s central and regional POEs.
- The impact of political influence and lack of accountability on POE management.
- Assessment of current commercial performance metrics in relation to state subsidies and capital investments.
- Evaluation of policy and institutional frameworks regarding corporate governance transparency.
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1.1 BACKGROUND
Worldwide, Governments establish State Owned Enterprises (SOEs) for different purposes but mainly for achieving public policy goals such as providing financial services, water supply, electricity, railways etc. World Bank identifies few goals of governments for establishing SOEs, such as achieving self-sufficiency in the production of basic goods and services, controlling natural resources, addressing market failures, curbing oligopolistic behaviour and promoting social objectives such as employment generation, regional development, and benefits for economically and socially disadvantaged groups.
A toolkit of the World Bank has identified goals for establishing SOEs for few countries stating that some countries use SOEs to 'develop strategic industries and compete in an increasingly globalized economy'. For example Russia has focused on establishing state-owned holding companies in the sector of shipping and aircraft. Middle East and North African countries established SOEs 'with explicit or implicit industrial development agendas' while in Vietnam SOEs were established for the purpose of developing strategic industries.
Chavez and Torres focused on identifying major SOEs in different countries that have a major influence not only in country but also in global economy mentioning thirteen of the largest oil firms being SOEs, Gazprom of Russia currently the largest company in the exploitation of natural gas, China Mobile currently the world's biggest mobile phone company, Saudi Basic Industries Corporation, from Saudi Arabia, the third largest bank in Europe by market capitalisation, Sberbank of Russia, the third largest port operator in the world, Dubai Ports, the world's fastest-growing airline and Emirates, also from the UAE.
Curutchet identified six theoretical arguments to answer the question why Governments establish SOEs. The first argument consists on the need to have a control over few sectors that for the state are considered as strategic such as energy, transportation, steel production and chemical industries in order to develop them. In addition, large investments are required in order to develop these sectors, and the state is seen as an actor that is more capable of providing more resources than the private sector. Further, some economic activities require specific technological and financial efforts and coordination of different agents.
Summary of Chapters
1 INTRODUCTION: This chapter provides the background for POEs in Kosovo and outlines the research problem, focusing on principal–agent issues and the methodology used.
2 AGENCY THEORY AND AGENCY LAW: This chapter covers the theoretical foundations of Agency Theory, rational choice, and the legal aspects of agency relationships in corporations and politics.
3 PUBLIC ENTERPRISES IN KOSOVO: This chapter details the history of POEs in Kosovo from the Yugoslav era to the post-independence period, including the legal and regulatory framework.
4 PRINCIPAL-AGENT PROBLEMS IN PUBLIC ENTERPRISES: This chapter analyzes specific agency issues such as capture, rent-seeking, moral hazard, and information asymmetry, and their observed impacts on POE performance in Kosovo.
5 RESULTS AND CONCLUSION: This chapter synthesizes the research findings, verifying the study's hypotheses regarding the presence and impact of agency problems, and suggests directions for future research.
Key Words
State-Owned Enterprises, Agency Theory, performance, principal–agent problems, accountability, transparency, law, rational choice, rent-seeking, moral hazard, information asymmetry, governance, Kosovo, public sector, corporate management.
Frequently Asked Questions
What is the core focus of this research?
The research focuses on analyzing the principal–agent problems within Publicly Owned Enterprises (POEs) in Kosovo and determining how these issues affect their commercial and financial performance.
Which theoretical frameworks are applied?
The study utilizes Agency Theory, Rational Choice Theory, and Public Choice Theory to interpret the behavior of stakeholders and the governance structure within POEs.
What is the primary goal of this thesis?
The primary goal is to provide empirical evidence confirming the prevalence of principal–agent problems in Kosovo's POEs and to verify the negative impact of these problems caused by weak law enforcement and gaps in legislation.
How was the research conducted?
The research employs a qualitative methodology, combining the review of literature and legislation with an empirical analysis of statistical data from 17 POEs and findings from expert interviews.
What main challenges does the study highlight?
The study highlights significant challenges regarding the lack of transparency, political interference in board appointments, weak oversight, and poor financial management leading to state dependency.
Which keywords define this work?
The work is defined by concepts such as State-Owned Enterprises, Agency Theory, principal–agent problems, governance, accountability, and the specific socio-political context of Kosovo.
How does the study address the role of political interference?
The study analyzes political control through board appointments, demonstrating how ruling parties use POEs as tools for political patronage, which directly causes serious principal–agent conflicts.
What does the study conclude regarding reforms?
The study concludes that current legislative gaps must be filled, enforcement needs to be strengthened, and corporate governance must transition toward merit-based selection processes to minimize the negative impacts of agency problems.
- Quote paper
- Njomeza Zejnullahu (Author), 2018, Principal-Agent Problems in Public Enterprises in Kosovo, Munich, GRIN Verlag, https://www.grin.com/document/1390631
