Legal form or financial behaviour? Explaining variation in excess returns in municipal waste management in Finland

Abstract

The agencification of municipal services has led to the emergence of semi-autonomous public law (PUBLAWEs) and private law enterprises (PRIVLAWEs), reshaping local public management. This study analyses financial performance in municipal waste management by comparing return on invested capital (ROIC) with the weighted average cost of capital (WACC) using data from 2013 to 2023. The results show that excess returns are common across organisational forms. However, contrary to expectations derived from corporatisation and New Public Management theories, private law enterprises do not systematically generate higher excess returns. Instead, payout policy emerges as a consistent predictor: enterprises that distribute surplus are more likely to generate returns above their cost of capital. These findings suggest that variation in financial performance is more closely linked to financial behaviour than to legal form, offering new evidence on the limits of corporatisation and the role of ownership strategies in regulated local public utility sectors.