An Empirical Analysis of Factors Influencing the Financial Performance of Local Public Enterprises in Korea：Focusing on the External Environmental Factors

Recently, the enormous debt of local public enterprises has focused the concerned on a hidden cause of the deterioration of local government finances. Such a serious situation has continuously appealed the need of the more effective policy alternatives that would be able to improve the financial performance of local public enterprises.
Being aware of this serious situation, this study aims to explore external environmental factors influencing the financial performance of local public enterprises and suggest some policy implications for enhancing their financial performance by using the empirical data of the 33 local public corporations under the provincial governments in Korea during 2011－2014 period. For these purposes, After dividing the environmental factors into two groups, the financial and the socio-political factor, this study analyzed the effects of the variables that constitute each factor on the ROA and the ROE which are treated as the representative index of the financial performance of local public enterprises.
The results of panel analysis for this study show that Both the financial autonomy of local governments as the financial factor and whether or not of local elections as the socio-political factor have a negative effect on both the ROA and the ROE of the local public corporations. With this result, this paper can say that some local governments with good financial condition operate them in the way of aggressive business with their financial power as a security. In particular, this paper can realize that the chief of local governments is considerably affecting the local public enterprises through the change of the political environment, namely, the local election.
Based on the results of this analysis, this paper would liked to suggest some policy implications as follows. Taking its close relationship with local governments into the consideration, from the short-term viewpoint, first of all, the active supports of local government for their enterprise and the preparation of institutional devices for securing the reasonable decision-making of the chief of local government should be deliberated primarily in order to improve the financial performance of local public enterprises. From the long term viewpoint, it is necessary for local government to prepare for them institutional conditions under which the local public enterprise would be able to command the more enlarged flexibility. Especially, It should be emphasized that the improvement of the financial performance of local public enterprises would be promoted with some ways of guaranteeing substantial autonomy, not a simple way of increasing the formal size. In sum, this paper thinks it very important for the performance improvement of local public enterprise that the chief of local government should cultivate continuously its peculiar organizational culture in which the local public enterprise should take a responsibility for all the results of operations executed in the organization for themselves.