Evaluating the efficiency effects of industry consolidation: Evidence from US interstate pipeline companies

Abstract

Purpose

Since the early 1990s, the US natural gas sector is characterized by substantial industry restructuring as a result of regulatory requirements following a liberalization objective. Accordingly, firms have chosen different strategies as a reaction of regulatory constraints, such as acquisitions, forming holding companies, or joint venture investment. In order to contribute to the success of business strategies driven by the regulatory framework, the purpose of this paper is to provide first evidence for the impacts of business strategies on a firm's efficiency within the gas transmission business.

Design/methodology/approach

The approach taken is a stochastic frontier analysis.

Findings

The results highlighted significant effects of acquisitions, holding structures, and joint ventures within the industry on the firms' technical efficiency estimates. The paper finds evidence for efficiency improvements caused by the new shareholder. The results suggested those holdings to be successful which have great experience in the construction and operation of oil pipelines. In the case that firms formed a joint venture to construct and operate a gas transportation pipeline, the empirical analysis showed a negative impact of such a joint venture on technical efficiency of the pipeline company.

Originality/value

The paper provides evidence for the missing link between operating performance and the evaluation of different business strategies in terms of efficiency within the natural gas interstate pipeline industry.

Citation

Hess, B. (2010), "Evaluating the efficiency effects of industry consolidation: Evidence from US interstate pipeline companies", International Journal of Energy Sector Management, Vol. 4 No. 3, pp. 462-481. https://doi.org/10.1108/17506221011073897