Public procurement and firm performance : the effects of public procurement on firm performance in Norway

Abstract

This master thesis sheds light on whether there is positive relationship between public procurement and firm performance in Norway. Two hypotheses are proposed. Hypothesis 1 is that there exists a positive relationship between public procurement and firm performance in Norway. Hypothesis 2 is that there exists a positive relationship between firms’ higher share of sales to public procurement and firm performance in Norway. The public procurement is at the Norwegian municipality level. Two large datasets have been used on firm performance and municipality procurement. The first dataset is firm level dataset which contains company and consolidated accounts for all Norwegian enterprises and groups for the years from 1992 to 2016. The second dataset is municipality data which comes from Kommunal Rapport’s Leverandørdatabasen. This thesis uses two methodologies to test the relationship. The problem is framed as a quasiexperiment. Firstly, Propensity Score Matching method is used in order to create a control group with identical age, industry, and region compared to treated group. Secondly, two regressions will be run on the matched sample to test for effects of public procurement on firm performance in Norway. And an additional regression analysis is conducted to test for the effects of public procurement on firm innovation performance. The findings show that public procurement is positive related to firm performance regarding EBITDA Margin and Return of Assets. The relationship between share of sales to municipalities and firm performance are non-linear, which suggests the lacking of alternative markets as an obstacle to firm performance. In addition, the findings demonstrate that companies selling to municipalities where they are located in have better performance than other companies. Weak competition and close connections between suppliers and public procurers might cause corruption issues. The findings represent that small-sized and tech companies have better firm performance and firm innovation performance by being suppliers to municipalities. However, the additional findings suggest that companies which are suppliers to municipalities have lower firm innovation performance. This may indicate a lack of innovation support through public procurement in Norway.