Ownership Structure and Financial Performance in the Trucking Industry
Francia, Arthur J., Porter, Mattie C., Sobngwi, Christian K., Academy of Accounting and Financial Studies Journal
This study investigates whether publicly held full truckload van trucking companies are more or less efficient than their private counterparts. Federal regulations require that all trucking companies with annual net operating revenue of three million dollars or more file a report with the Federal Motor Carrier Safety Administration at least annually. This report includes financial information similar to a balance sheet and income statement and requires non-financial information such as the number of tractors, trailers, employees, mechanics and numerous other nonfinancial measures. In this study, we use the Motor Carrier Financial and Operating Information database and ratio analysis to see if the difference in the nature of the agency conflict between public and private firms is reflected on their financial performance.
The trucking industry is a large part of our economy. More than seventy percent of the freight in the United States is moved by truck (ATA, 2007-2008). The industry can be classified into segments that are very homogeneous with regard to products and services. There are twenty-one classifications based on the type of service that generate the majority of revenues. We use the largest segment, dry van freight, as the basis for our analysis.
One of the major strengths of this study is that by using a very homogeneous group of private and public companies in a sub-set of an industry, we avoid the issues that arise when a database with industry codes is used to stratify the population for comparison. In many cases, one industry code in a financial database includes companies that are not comparable because the definition of the code is so broad that the actual companies included in the code are not comparable (Jacobs and O'Neill, 2003).
A second strength is that we are using information from a regulatory agency database. The format, the guidelines, the classifications of data, and the chart of accounts are established by the regulatory agency. The benefit of using regulatory information is that the companies are required to follow the same guidelines for filing the information and this increases the comparability of the data. If the company has more than three million in net sales, they must complete the regulatory reporting requirement.
Our sample is made up of 847 firm-year observations related to 302 individual firms for the period ranging from 1989 to 2003. We find that the ownership structure of firms in the truckload segment of the trucking industry does not influence the level of profitability achieved by these firms. However, we also find that public trucking firms perform better than their private counterparts. These results lead us to conclude that other operating choices may be the source of this difference in profitability. We find that growth in sales in the truckload segment of the trucking industry depends on whether the firm's ownership is publicly or privately held. Moreover, whereas private firms are less likely to grow after a prior period of positive growth, that is not the case with the public ones.
Our results contribute to the literature of public versus private firms' profitability and efficiency in several ways:
* The data we use is homogeneous for both public and private companies; therefore, it has internal consistency.
* The industry is large enough that we can identify 17 public firms and 285 private sector firms in the full truckload van industry. These 302 firms provide the same service to the same customer group using the same type of equipment so they are very comparable in operational abilities.
The paper is organized as follows. We discuss the motivation for the study using the trucking industry and the van truckload segment. Then we build our hypotheses by examining the gaps in the related literature. The next section discusses our approaches to sample selection and research methodology. …