Profitability differences between public and private firms: The case of Norwegian salmon aquaculture

Abstract

Capital requirements increase as aquaculture becomes more industrialized, with firms increasing their scale of production and capital intensity. Public listing at stock exchanges can provide improved access and cheaper financing for firms. Since the public listing is a fairly recent phenomenon and relatively few aquaculture firms have entered stock markets, it is useful to investigate the differences in profitability among listed and private aquaculture firms. Our econometric estimates based on a unique panel dataset of Norwegian salmon companies indicate that the sources of profitability, as measured by return on assets (ROA), are different among the two groups of companies. Listed companies are able to increase profitability through working capital optimization; however, they are more negatively affected by operating leverage and liquidity. This indicates that using liquidity as a risk reduction measure is costly in the industry. Although private firms have historically performed better on average in terms of ROA, the difference is not statistically different.

Keywords:

• Aquaculture
• private ownership
• profitability
• public ownership
• salmon

Notes

1 Authors’ own calculations, based on data from the Norwegian Directorate of Fisheries, show that percentage increase in total capital employed during the period 1990 to 2018 is 1299 percent, or a 14-fold increase. See Table 1 for more details.

2 Examples of liquid financial assets are cash and cash equivalents, accounts receivable, inventory, and marketable securities.

3 For firms without start of period assets, we use end of period assets minus half of the net profit in period as a proxy of average assets.

4 Some of the sample firms are subsidiaries of the listed companies. Thus, profitability differences between profitability of private and public firms also attribute to capital/investment optimizing from the perspective of the listed parent firms.