FEDERAL UNIVERSITY OF RIO GRANDE DO NORTE SOCIAL AND APPLIED SCIENCES CENTER DEPARTMENT OF ACCOUNTING ACCOUNTING SCIENCES COURSE

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FEDERAL UNIVERSITY OF RIO GRANDE DO NORTE SOCIAL AND APPLIED SCIENCES CENTER

DEPARTMENT OF ACCOUNTING ACCOUNTING SCIENCES COURSE

FELIPE ANDERSON SMITH DE MEDEIROS

GOVERNANCE STRUCTURES AND COLLECTION PERFORMANCE OF BRAZILIAN WATER AND SANITATION UTILITIES

NATAL/RN 2019

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FELIPE ANDERSON SMITH DE MEDEIROS

Monography presented to the coordination of Accounting Sciences Course of Federal University of Rio Grande do Norte, as a requirement to obtain the bachelor’s degree in Accounting Sciences.

Instructor: Prof. Dr. Alexandro Barbosa

NATAL/RN 2019

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Universidade Federal do Rio Grande do Norte - UFRN Sistema de Bibliotecas - SISBI

Catalogação de Publicação na Fonte. UFRN - Biblioteca Setorial do Centro Ciências Sociais Aplicadas - CCSA

Elaborado por Shirley de Carvalho Guedes - CRB-15/404 CDU 657:628 RN/UF/CCSA

1. Accounting - Monografia. 2. Collection performance - Monografia. 3. Governance structures - Monografia. 4. Water and sanitation utilities - Monografia. I. Barbosa, Alexandro. II.

Universidade Federal do Rio Grande do Norte. III. Título.

Medeiros, Felipe Anderson Smith de.

Governance structures and collection performance of Brazilian water and sanitation utilities / Felipe Anderson Smith de

Medeiros. - 2019.

49f.: il.

Monografia (Graduação em Ciências Contábeis) - Universidade Federal do Rio Grande do Norte, Centro de Ciências Sociais Aplicadas, Departamento de Ciências Contábeis, Natal, RN, 2019.

Orientador: Prof. Dr. Alexandro Barbosa.

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FELIPE ANDERSON SMITH DE MEDEIROS

Monography presented to the coordination of Accounting Sciences Course of Federal University of Rio Grande do Norte, as a requirement to obtain the bachelor’s degree in Accounting Sciences.

Instructor: Prof. Dr. Alexandro Barbosa

Presented on: ____ / ____ / ____

EXAMINING BOARD

______________________________________

Prof. Dr. Alexandro Barbosa - Instructor

______________________________________

Profª. Dra. Giovanna Tonetto Segantini – Internal Member

______________________________________

Prof. Msc. Raimundo Marciano de Freitas Neto – External Member

Natal/RN 2019

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To my parents.

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ACKNOWLEDGMENT

Now it’s time to thank some important people who participated actively from my graduation.

First of all, I want to thank god for guiding me for all this way.

I want to thank my family, specially, my parents Alessandra Cynara Smith and Josetanio de Medeiros, who have been supporting me for all my twenty-three years.

The friends that the course has gave me: Stefânia Dantas, Lisianne Rabelo, Krissia Paiva, Andrezza Andrade, Daniel Coutinho, Melissa Marinho, Rodrigo Lopes. The friends that the internship has gave me: Caio Roberto, Valentina Duranti, Breno Cesar, Daiane Rocha, Edson Cavalcante, Rodrigo Gomes and all of the others.

I want to thank my professors as well, who shared some of their knowledge and have contributed with my critical thinking, in special, my teacher and academic advisor Alexandro Barbosa (thank you for all the support that you’ve gave it to me), to the teacher that advised me in my first academic experience writing an article Aneide Oliveira Araújo, to Yuri Azevedo for all the opportunities that you gave to me, even the ones that I didn’t know how important they were, and last but not least, I want to thank Raimundo Marciano for all the advises and support.

Finally, I want to thank everyone who motivated or supported me during these past 5 years. I truly believe that your support brought me to this moment.

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“A man cannot be comfortable without his own approval”

Mark Twain

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ABSTRACT

This study has aimed to analyze the association of the government structure and the collection performance of water and sanitation firms. To achieve the scope of this objective, information of an economic-financial nature was collected from the financial reports and information of an operational nature of the Sistema Nacional de Informações sobre Saneamento (SNIS) of 63 Brazilian water and sanitation firms in the longitudinal panel from 2013 to 2017. The structure of government studied has been limited to the aspects of property (ownership) and corporatization, that is, the aspect of legal personality. For the analyzes, econometric estimation resources were used, specifically, the equations of generalized estimates (GEE). In the aspect of ownership, the findings suggest that private property is associated with lower collection performance, while, in the aspect of corporatization, the results do not suggest significant associations between the quotes of the firms in the stock market and the revenues evasion index. In relation to the control variables, the firms located in the southern region and density of the network will be associated with better collection performance, while, being located in the North region and accessibility suggest worse collection performance.

Keywords: Collection Performance, Governance Structures, Water and Sanitation Utilities.

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RESUMEN

Este estudio ha objetivado analizar la asociación de la estructura de gobierno y el rendimiento de recaudación de las concesionarias de abastecimiento y saneamiento de agua. Para lograr el alcance de dicho objetivo, fueron colectadas informaciones de naturaleza económico-financiera de los informes financieros e informaciones de naturaleza operativa del Sistema Nacional de Informações sobre Saneamento (SNIS) de 63 concesionarias de abastecimiento y saneamiento de agua brasileñas en el panel longitudinal de 2013 hasta 2017. La estructura de gobierno estudiada ha sido limitada a los aspectos de la propiedad y corporatización, o sea, el aspecto de personalidad legal. Para los análisis fueron utilizados recursos de estimaciones econométricas, específicamente, las ecuaciones de estimaciones generalizadas (GEE). En el aspecto de la propiedad, los hallazgos sugieren que la propiedad privada es asociada a menores rendimientos de recaudación, mientras que, en el aspecto de la corporatización, los resultados no sugieren asociaciones significativas entre as cotizaciones de la concesionaria en mercado bursátil y el rendimiento de recaudación. Con relación a las variables de control, la concesionaria se ubicar en la región sur y densidad de la red se asocian con mejores rendimiento de recaudación, mientras que, se ubicar en la región Norte y accesibilidad sugieren peores rendimiento de recaudación.

Palabras Clave: Rendimiento de recaudación, estructura de gobierno, abastecimiento y saneamiento de agua.

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LIST OF BOARDS

Board 1 - Plan/Federal Programs until PLANASA ... 18 10 Board 2 - Previously works relating performance, efficiency or private/public

control with revenues evasion index ... 25 22 Board 3 - Some of previously works relating Governance Structure at water and

sanitation utilities ... 26 23

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LIST OF TABLES

Table 1 - Observations analyzed ... 28 10

Table 2 - Descriptive Analysis ... 34 22

Table 3 - Variance Inflation Factors ... 38 23

Table 4 - GEE regression results complete model ... 39 39

Table 5 - Marginal Effects... 39 39

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LIST OF FIGURES

Figure 1 - Kernel density estimate – 2013 ... 35

Figure 2 - Kernel density estimate – 2014 ... 36 37

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LIST OF ACRONYMS

CVM – Comissão de Valores Mobiliários

PAEG – Programa de Ação Econômica do Governo PED – Programa Estratégico de Desenvolvimento PND – Programa Nacional do Desenvolvimento PLANASA – Plano Nacional de Saneamento BNH – Banco Nacional de Habitação

ANA – Agência Nacional de Águas

SNIS – Sistema Nacional de Informações Sobre Saneamento PLANSAB – Plano Nacional de Saneamento Básico

EVASO – Revenues Evasion Index CORP – Corporatized

NO – North NE – Northeast SE – Southeast S – South

Affor – Affordability

GDP – Gross Domestic Product

PCR – Participation of Residential Economies POPURB – Participation of Urban Population COV – Coverage

GEE – Generalized Estimating Equations GLM – Generalized Linear Model

QIC – Quasi Likelihood Under Independence Mode Criterion AR – Auto Regressive

VIF – Variance Inflation Fator

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SUMMARY

1 INTRODUCTION ... 15

1.1 CONTEXTUALIZING THE PROBLEM ... 15

1.2 OBJECTIVES ... 17

1.2.1 General Objective ... 17

1.2.2 Specific Objectives ... 17

2 BRAZIL’S SCECTOR OF WATER AND SANITATION UTILITIES ... 18

2.1 THEORETICAL FRAMEWORK ... 21

2.2 GOVERNANCE STRUCTURE, DEFAULTS AND PREVIOUS LITERATURE ... 24

3 METHODOLOGY ... 28

3.1 CHARACTERIZING THE RESEARCH ... 28

3.2 SAMPLE SELECTION AND VARIABLES USED ... 28

3.3 CONSTRUCTING HYPOTHESES ... 31

3.4 CONTROL VARIABLES ... 32

3.5 STATISTICAL METHOD ... 34

4 RESULTS ... 29

4.1 DESCRIPTIVE ANALYSIS ... 34

4.2 ECONOMETRIC ANALYSIS ... 38

REFERENCES ... 44

APPENDIX A – QIC’S ... 49

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14 1. INTRODUCTION

1.1. CONTEXTUALIZING THE PROBLEM

Independently of money or region that you have been born, it is well known that people have some basic needs or basic necessities that are fundamental to give them quality of life and guarantee mental or body health.

One of them certainly is water; not just the access to water, but access to a good and as pure as possible aqua. In this scenario, sanitation provides techniques, whereby it is possible to clean this element, besides guaranteeing the health of the individuals that use this service.

In Brazil, the water and sanitation utilities had been controlled majority for companies that had public management, however according to Barbosa and Brusca (2015) this has been changing and the private ones are becoming bigger. So, it brings back the discussion of efficiency, what kind of company can be the most efficient, the ones that have public management or the ones that private management. This is one of the most discussed subjects for the past years, if the way of reducing costs, becoming more efficient can be reached just outsourcing services.

Contextualizing this situation, Barbosa and Brusca (2015) also state that the tariffs is the way to improve public service, increase the efficiency of the work and provide the best service possible for the society. Despite this, we have to consider, following the authors’ point of view, that tariffs may have a social aspect behind this and that it might be profit-oriented. It is important that people could receive the service of water and sanitation utilities and maintain unbroken this fundamental principle as well.

Complementing this idea, Nauges and Wittington (2017) argue that one important aspect, despite of water scarcity and climate change, is how tariff reforms affects other characteristics, such as revenues. Thus, the consequences of tariffs reforms, according to the authors, are needed to reach better economy and services as well.

Moreover, in a market which has competitors, the firms present a seek for better economy and services as a practice day by day, in order to increase their coverage on the market. However, in a monopoly market, the one who is going to provide the service or sell a product could present a lack of efficiency and productivity and, despite of this, still continue their activities. According to

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15 Leibenstein (1966), a monopoly situation could bring about an inefficient (x- inneficiency) scenario, due to bad or inefficient practices, even if they have been doing it for a long time.

Independently if we have monopolists or competitors in a market, agency theory pointed a problem which could occurred when the one who makes decisions (agent) is not in accordance with the one who gives him power of decision (principal), or the one who expect him to follow the organizational missions, objectives and culture in general. It could mean higher costs to the entity, in order to give some incentives to their coworkers trying to manage that difference of interests.

Some studies have been discussing the management of public sector, trying to show how to get a better performance (ARNABOLDI; LAPSLEY;

STECCOLINI, 2015), the efficiency of tariff designs/models (NAUGES;

WHITTINGTON, 2017; LOPEZ-NICOLAS et al, 2018), and even how to improve the quality of water, without affecting the tariff cost (PALOMERO-GONZÁLEZ, 2017).

This tariff cost it is very important for society, because if it doesn’t have a reasonable price it could mean more people indebted with the company.

Furthermore, it is important that these companies keep applying good techniques on how to measure the variables which have influence on tariff’s revision model, in order to maintain a good service for a consistent price.

Another important point refers to resources to be applied on investments, in order to expand water and sanitation network, whereas guaranteeing the entrance of resources by knowing some reasons for not receiving them.

In this context, the present work analyses the association between governance structure and collection performance (defaults of payments), which is measured by the revenues evasion index. Governance structure is related on this work as: the management of the corporation, which could be private (mixed capital company with private management or private corporations) and public (mixed capital company with public management); and being corporatized (registered on Comissão de valores mobiliários - CVM) or not corporatized.

The present work contributes to the scientific area because it brings another point of view of governance structure by focusing on collection

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16 performance, as we figure out the association between collection performance and governance structure.

In this context, the present study analyses aspects that impact on defaults, so, brings the follow problem:

What is the association of collection performance and governance structure?

The present work is divided in 5 parts, the first one is destined of introduced the subject, the importance of this work and to show some aspects that can be related with the main topic. The second part is divided in 3 subparts, the first is going to introduce the Brazilian water and sanitary scenario, the second is introduce the theories that can provide support for the research and guaranteeing his importance and relevance and the third one is going to bring some studies that had been done at the area. The third part, methodology, is going to bring the methods used to construct the model, and the discretionary actions to use the variables selected. The fourth part brings the results, the analysis of them and the relation with papers that had been done in the area, if it is possible. Finally, the fifth part is going to finalize concluding what was done, revising the previous parts and giving some instruction for future researches.

1.2 OBJECTIVES 1.2.1 General Objective

This study aims to associate the collection performance with governance structure.

1.2.2 Specific Objectives

- Analyze the association of Corporatized firms with collection performance.

- Investigate the association of Ownership Structure with collection performance.

- Identify the relevant Control Variables to collection performance.

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17 2. BRAZIL’S SCECTOR OF WATER AND SANITATION UTILITIES

In terms of statutory law, water and sanitation utilities was regulated, primarily, by the Brazilian Constitution, which gave municipalities autonomy to manage this service with specific regulatory and to the Federal law the role of stablishing a general plan, what had to be integrated by the municipalities to their specific plan (RODRIGUES, 2012).

However, only with the law n. 11.445/07, this sector could have a national normative, because the previous law (6.528/78) that regularized the sector was limited to the tariff aspects (RODRIGUES, 2012). During this period, previously to Plano Nacional de Saneamento (PLANASA), some Plans or Federal Programs were introduced in order to attend urban society in large scale.

Board 1: Plan/Federal Programs until PLANASA

Plans/Federal Programs

Current Situation Objective

Water

Supply Sanitation

Water

Supply Sanitation

1. PAEG (1964-1966)

14,2 million of urban habitants

-

70% of urban population or 32,2 million of people (in ten years)

30% of urban population or 32,2 million of people (Until 1973)

2. Plano Decenal (1967-1976)

40% of urban population, 18,1 million of habitants

33% of urban population , 14,9 million of habitants

3. PED (1968- 1970)

18,8 million of habitants

25 million of

habitants

10,7 million of habitants 4. Goals and

basis (1969- 1973)

5. PLANASA (1971-1975)

26,7 million of habitants or 50,4%

20% of habitants

At least 80% of urban population

50% of urban population

6. PND I (1972-1974)

27 million of

habitants

38 million of

habitants

19 million of habitants

7. PND II (1975-1979)

39,7 million of habitants or 65% of urban

17,7 million of habitants or 29% of urban population

60,3 million of habitants or 79% of urban

33,7 million of habitants or 44%

of urban population

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18

population population

8. PLANASA (1975-1990)

More than 80, at least in 80 % of cities (In 1980)

To metropolitan areas, capitals, cities with high size; and in easier services to cities and small villages

Source: Adapted of Almeida (1977) and Turolla (2002)

Note: PAEG - Programa de Ação Econômica do Governo,PED - Programa Estratégico de Desenvolvimento, PND - Programa Nacional do Desenvolvimento, PLANASA - Plano Nacional de Saneamento.

These Plans cannot be compared, because their parameters are statistically different, but they can be used to notice how government improves public service, in terms of comprehensiveness (ALMEIDA, 1977).

Moreover, PLANASA was a really important governmental plan, which tried to provide potable water and a decent sanitation service to a lot of people and gained forces when Banco Nacional de Habitação (BNH) started to provide investments (NUNES, 2015). Salles (2009) affirms that although it had a huge impact on sanitation, the advance on potable water was not nearly as good. A short time before PLANASA’s implementation, state companies of water and sanitation were created, intending to give a better quality service to society, by means of a connection with economic, operational factors and the practice of giving subsidies to these entities (SALLES, 2009).

After PLANASA’s creation, there was a motivation into state companies’

creation, which had to formalize a contract with municipalities to explore these areas and work in a monopoly situation (SALLES, 2009). According to Jorge (1992), these municipalities had suffered some critics, because they didn’t solve the problems that have appeared at the sector or couldn’t provide a service to attend people crescent demand, so the state companies came as a solution. It is noteworthy mentioning that an extension of water supply, sanitation and a management efficient is directly related with economic grown of countries and have noticed a direct impact on poverty (NUNES, FERREIRA and SOUSA, 2018).

After the extinction of BNH on 1986, PLANASA had problems with resources, so despite its qualities and benefits it finished in the beginning of

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19 90’s. According to Sabbioni (2008), some policies of anti-inflationary nature, possibly, had a participation in all of this, because the Government was practicing lower water tariffs, in order to control inflation rate. At that time Federal Government stopped to regulate the sector, and for a while companies could set their own tariffs, using as parameters their costs and economic situation (ANDRADE and MAGALHÃES, 2016).

About this time, a platform called National System of Sanitation Information (SNIS) was created. This tool has the purpose of: plan and execute public policies of sanitary sector, explain and orientate how applicate the resources, evaluate the development of sanitary sector, improvement of management, orientate the regulatory and supervisory activities and promoting social control (SNIS, 2019).

Some discussions about regulation and how to supervise those companies’ activities had started at that time, and as a result in 2007 with the 11.445 law, the Agência Nacional de Águas (ANA) commissioned to propose national norms to regulation of water and sanitation utilities in Brazil, not just for them, but with the assistance of regulatory agencies, which provide a technical work of regulation. These agencies have a lot of importance at controlling firm’s activities, for example, proposing parameters of tariff’s reforms and controlling the inefficient monopolistic firm’s behavior.

Nowadays, one of the most important topics of water and sanitation utilities are being discussed and it is the investment topic. Another topic that is in discussion in Brazil is the access of water and sanitation utilities in Brazil, some of papers, just like Saiani (2016) give the credit to the presence of economies of scale, economies of density and the incomes of the population.

Economies of scale and economies of density bring the idea of an easier way to provide services of bigger population, because expansion and maintenance tended to have lower costs (SAIANI, 2016).

This sector needs a lot of investment to proceed growing and privatization topic is in the center of discussion, according to Mello (2005) privatization have gained forces, because of lack of public management, otherwise Gonçalves (2017) pointed that through the world, remunicipalization have gained forces. That can be proved by noticing some recent papers

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20 (TEIXEIRA, 2018; McDonald, 2018; BEVERIDGE, HÜESKER and NAUMANN, 2014; VALDOVINOS, 2012; MAS, 2016; STRAT, 2014; NISSAN et al 2004).

2.1 THEORETICAL FRAMEWORK

The Property rights theory says that an individual or firm can explore something and control the use of valuable resource, to prevent some loss or the value inherent of this item it is going to be depreciated into a competition of use, a competition for control, so, the property right to manage something it is huge important not just to the person, but to the economy as well (LIBECAP, 1999).

These theory is related with another economic idea, the transaction cost theory, which one says that to guarantee the propriety right it is necessary to charge with some extra costs, transaction costs, because doesn’t exist a complete contract, so, all the contracts that are firmed for two parties have missing topics. These missing parts can be related to asymmetric information or moral hazard (HART, 2017). And the same author defends the point of a discretionary comportment to eliminate some information, trying to reach more self-benefits, if we compare with the other part of the contract.

Wang (2016) explains some aspects brings from the theory to propose what’s the motivation behind of an incomplete contract, one of the factors is the enforcement costs, but himself refused that as a response of the problem, because this situation couldn’t be explained by this, we have a police and a system to warranty people rights in almost every country that regularize and guarantee the stakes present in contract, without exorbitant costs behind that.

According to Coase (1960) apud Barbosa (2011), implementing property rights on the proper way, could turns public intervention unnecessary.

However, implementing property rights on a proper way is difficult even with, because depending on the management the attenuation of those rights could be practiced (BHATTACHARYYA, 1995). For example, on private scenario it is interesting for mangers to seek for a better performance, being more efficient and, consequently, achieving their goals. But, in public scenario, because of the distance from achieve their goals and really obtain some advantage derived from that, the inefficiency on water and sanitation utilities present this as one of the causes. In other hand, the private entities have roles

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21 to follow a better efficiency to get a better situation and do the best decision- making (RENZETTI AND DUPONT, 2003).

On that context of decision-making, is important to mention the importance of public choice’s theory; this theory brings the idea of governments promoting actions and projects thinking on their own objectives, concerning just or principally to the actions that might influence on his/her reelection (BARBOSA and BRUSCA, 2015).

On that way we can point an inefficient scenario derived from the previous idea that was constructed and that might reinforce the previous theory, more precisely, on the possibly superiority of private management, because of the interest on improving management.

According to Barbosa (2011), the antecedent of agency theory was property rights theory. This theory can be characterized as one of the most important theories when we are referring to managerial accounting (BOUČKOVÁ, 2005), complementing the previous idea, say that there are some economic theories that could be categorized as dominant, if we’re referring to organization and management and the agency theory is one of them. The same authors also say that it, normally, happens when we have a principal, who delegate an agent to work for him, in order to improve the value of the company, but instead of increase the profit, derived by this work relation, it can bring additional costs and an inefficient labor to the entity, so to guarantee the agent cooperation these agency costs can appear.

To exemplify that situation Bosse and Phillips (2016) explained with emphasis on agency theory logic, that a CEO who’s paid with stock options of the company represents a positive thing, because it means a higher result for the firm. Cooper, Gulen and Rau (2010) argue that a lot of ways of stimulate (pay-performance technics) the workers to bring results can be applied, despite this the most used is stock options and stock ownership. But, the same authors present as well, that in a regulated industry, which one pay-performance plans couldn’t represent a significant impact.

Relating this theory, particularly, with the area of water supply and sanitation, we could relate the principal as the citizen who lives on the determined municipality, which one represent the one who hires another part to provide some service for him and the agent as the company, which one provide

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22 the service for them. This organization can be owned by public or private part, in this way according to Renzetti and Dupont (2003) agency theory can be a point to analyze the influence existent between the influence of this ownership on the performance of water utilities.

X-efficiency theory defended that monopolies are inefficient at nature and there is not associated with ownership. This theory was created, because there were some aspects more important than allocative efficiency, which one was the main focus of microeconomics study (LEIBENSTEIN, 1966). Leibenstein (1966) defended that another idea had to be explored, something that could be related to motivational aspects and he named as X-efficience, something that was related with the definition and appropriated allocation of resources, furthermore he emphasized that this event could be noticed in a small context, monopoly and international trade as well.

According to Leibenstein (1966), some situations could present an allocative inefficiency, for example, when we have some manager, in a public company, who just acts thinking on his own objectives, instead of company goals, they are going to present an inefficient scenario. Complementing this, the same author also said that X-inneficience results from “incomplete contracts, effort discretion, and nonmaximizing behavior” (1978, p. 203), also, for agent- principal divergences of motivation derived by unlike objectives.

Moreover, the environment which surrounds the companies at water and sanitation utilities is difference and depending on the Governance Structure which they have, we can notice different motivation behind of their actions. On that way, it is noteworthy the difference of corporatized (companies with stocks negotiated on market) companies and the mom-corporatized firms. Using Signalization Theory (SPENCE, 1973) idea and relating with market, we can put on the idea of a better performance and efficiency which can be presented of these companies, in order to attract investors by “good” signals.

Sato (2013) talked about sustainability and it fragmentation at water and sanitation utilities in economic efficiency, operational efficiency and the social function of the provided service. This author pointed the reduction of revenues evasion and the reduction of indebtedness at focused on economic efficiency, on that way, in order to show better signal to the market and all the

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23 stakeholders as well, it is pointed that corporatized companies are going to present better indicators involving those subjects.

2.2 GOVERNANCE STRUCTURE, DEFAULTS AND PREVIOUS LITERATURE According to Barbosa (2015) the literature about the influence of some aspects at governance structure are related with tariffs levels and it exists a variety of explanatory variables that could be related to these subject. One of these variables is called ownership, which categorized the management of the companies, if they are controlled by public or private agents.

In this way, Governance Structure could be defined as a (some) characteristics of determined companies, which could explain some phenomenon’s, in Barbosa’s case it might helped to explain tariffs level.

Otherwise, in the present study two of these variables which categorize Governance Structure are going to be used to explain the revenues evasion index, in other words, the level of collection performance.

Derived from incipient works about collection performance, revenues evasion relating with Governance Structure aspects as the main purpose of the work, it has become difficult to make comparisons or define some perspective at the results, at least using previous literature, even so, the theories above mentioned and other ideas that have been developed through this section were used to reinforce those ideas.

Referring to efficiency, that’s really important and a lot of strategies have been discussed for researchers and policy makers through the past years, specially, focusing on governance, in order to provide better information and conduce for better decision making (ROMANO and GUERRINI, 2011).

At this theme a lot of subjects have been discussed, for example, the importance of organization (if the private-sector is participating) and regulation to efficiency (BUAFUA, 2015), some of the papers were produced focused on Brazilian scenario (BARBOSA, 2016; FERRO et al 2014; SOUZA, FARIA and MOREIRA, 2009; SABBIONI, 2008; TUPPER and RESENDE, 2004).

In the same context, some authors discussed about the tariffs, proposing some new method, in order to find another way to measure the tariff or just to discuss some factors that has some kind of impact on tariffs cost (NAUGES and WHITTINGTON, 2017; ROMANO, GUERRINI and CAMPEDELI, 2015;

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24 BARBOSA and BRUSCA, 2015; KAYAGA and SMOUT, 2014). But, there aren’t any papers using revenue’s evasion as a dependent variable, just like aforecited as the main focus of the work, despite this it is a variable that can be found in researches trying to categorize the companies in terms of efficiency, performance or, for example, trying to discover if the company that has private control is more efficient than the public ones. Besides, that metric is presented as one of the efficient ways to grasp the efficiency of these services at Plano Nacional de Saneamento Básico – PLANSAB (BRASIL, 2014).

Board 2 – Some of previously works relating performance, efficiency or private/public control with revenues evasion index

Author (s) Sample Objectives Results

Alencar Filho, Moreira and Loureiro

(2004)

26 Brazilian companies between

1998 and 2001

Evaluate CESB’s performance, using EVA as technique to measure the financial

development and a method created by the researchers to validate their results

(aggregate index of performance).

EVA results presented the same

results as the aggregate index of

performance proposed by the

authors.

Alencar Filho and Abreu (2007)

26 Brazilian companies from 2003

Identify and also examine some factors which have

explained the sanitation companies’

performance and to expand the information on basic

sanitation.

The variables that were more representatives on

performance was:

Operational Management factors: Monitoring and control; Water

demand management;

Sewage coverage;

Urban structure;

Environmental protection;

Disposition and use of the urban space;

Economic and financial capacity;

Tariff policies;

Collection efficiency;

and Liabilities Sampaio and

Sampaio (2007)

36 Brazilian companies of sanitation between

1998 and 2003.

A study which tried to grasp the political

influences on the efficiency of Brazilian companies that works on sanitation sector.

South region, continuity of administration and same political party (coincidence of party

at municipal management and state management),

on the other side

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25 north, northeast and

central west are related with less efficiency. Water supply is more efficient than sanitary

sewer.

Pinheiro, Savoia and Angelo (2016)

217 Brazilian companies on 2000,

422 on 2005 and 1203 on 2010

A study which aims to evaluate the performance of the private management

of water supply and sanitation services in

Brazil

The results indicate that private companies outperform public entities in several

aspects, like productivity, investment, return and access to these services, pointing out

the concessions and public-private partnerships are feasible ways to reach political targets

of universalization of Water Supply and

basic Sanitation.

Source: Own Production

Board 3 - Some of previously works relating

Governance Structure at water supply and sanitation utilities

Author (s) Sample Objectives Results

Barbosa (2015)

2005 and2012

Contribute at pointing one more discussion

at public versus private management,

and to determine the effect of regulatory

structure on tariff levels.

The water supply and sanitation tariff levels

are higher for privately managed

corporations, corporation regulated

by a local agency or a regional agency

does not exhibit significantly lower

tariff levels than unregulated corporations and that

the use of the rate of return and price cap/revenue cap

regimes do not provide tariff levels lower than those set

via negotiation with the municipality.

Barbosa (2016)

2005 to 2013

An analyzes of the effect of governance

on the dynamic efficiency of water

utilities

The deficit of capital for universalization is the principal factor of the inefficiency, the ownership type has

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26 no significant effect

on efficiency, regulatory agency has not ensured that utilities achieve better

efficiency, price-cap and revenue-cap

regimes are associated with lower

efficiencies.

Source: Own Production

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27 3. METHODOLOGY

3.1 CHARACTERIZING THE RESEARCH

According to Raupp and Beuren (2006) because of the particularities of accounting sciences, there are some delineations of research, which ones fit on with this knowledge area. Therefore, she mentioned that a research on that area could be defined in three categories: objectives, procedure and approach of the problem.

Using Raupp and Beuren (2006) concepts, the present research it is categorized as descriptive (objective), because describes some characteristics of determined population, through collecting datasets from water and sanitation utilities. It is characterized as experimental (procedure), because some variables are collected and treated, in order to notice the influence of some of those variables. Finally, referring to the problem approach the present research is categorized as quantitative, because of the collection and treatment of the variables and the importance of statistics through this process.

3.2 SAMPLE SELECTION AND VARIABLES USED

The sample selection comprehended the companies which is private company, mixed capital company with public management, mixed capital company with private management that are listed on SNIS database between 2013 and 2017, 63 companies, totalizing 218 observations, but because of missing information, financial report absence and the presence of outliers it was necessary to exclude some companies of the database. Besides, this time interval was chosen because it represents a tariff cycle.

Table 1 – Observations analyzed

N Percent

Included 218 66,06%

Excluded 112 33,94%

Total 330 100,0%

Source: Own production

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28 The variable that was used as dependent variable, revenues evasion (EVASO), a proxy of collection performance, was collected through SNIS platform as IN029 code of identification. It expresses the operational revenues that couldn’t be received, but should have been received. According to Alencar Filho e Abreu (2007), this index expresses the invoicing less total that was received in the cashier during a determined period. The authors also said that this metric is precise to measure the collection performance.

Corporatized (CORP) variable was collected manually through CVM website. The companies were searched and received a “1” just one year after the entrance date.

Ownership variable was collected through SNIS platform, using the information of Juridical Nature. It presented the companies into their juridical nature, which could be: private company, mixed capital company with public management, mixed capital company with private management. The considered privates were: private companies and mixed capital companies with private management and the public ones: mixed capital company with public management.

Affor was collected through two SNIS variables (Average consume per capita and average tariff charged) and the other used variable it was GDP per capita which was collected by IBGE database. On this portal, the GDP per municipality could be found, the population who is attended per municipality and the GDP per capita per municipality as well. For this work, these GDP per municipality were summed, in order to reach the GDP per municipality per company. After that, the GDP per capita per company was divided for the sum of the Total population served per company, in order to reach the GDP per capita per company.

According to Oliveira (2008) affordability presents a critical problem, because with lower incomes, in percent, who doesn’t afford much money to pay for services in general, they are paying a lot more than the ones with higher incomes.

PCR variable was collected through SNIS database, after collecting this variable, proceeded with the sum of the residential economies of water and sanitation and the sum of the economies of water and sanitation as well, in order to obtain the participation of residential economies as the quotient.

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29 Another variable which was added trying to grasp the participation of a group in relation with the total of water and sanitation economies, it was POPURB, which grasp the participation of urban population into total economies and just like PCR, the used variables were collected from SNIS database.

Density variable was collected through SNIS database, in order to obtain the extension of the net of water and sanitation per total of population attended.

Another variable which grasps the ambient in focused, it was COV variable, that divided the companies into their coverage, which could be regional, micro regional and local (SNIS, 2017) and just like density variable the platform consulted to collect was SNIS.

𝐸𝑉𝐴𝑆𝑂𝑖, 𝑡 = 𝛽1𝐶𝑂𝑅𝑃𝑖, 𝑡 + 𝛽2𝑂𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝𝑖, 𝑡 + 𝛽3𝑁𝑂𝑖, 𝑡 + 𝛽3𝑁𝐸𝑖, 𝑡 + 𝛽4𝑆𝐸𝑖, 𝑡 + 𝛽₅𝑆𝑖, 𝑡 + 𝛽₅𝐴𝑓𝑓𝑜𝑟𝑖, 𝑡 + 𝛽₅𝑃𝐶𝑅𝑖, 𝑡 + 𝛽₅𝑃𝑂𝑃𝑈𝑅𝐵𝑖, 𝑡 + 𝛽₅𝐶𝑂𝑉𝑖, 𝑡 + ε𝑖, 𝑡

Board 4 – Variables Used on the model.

Variable Formula

“Signals expected

” Revenues

Evasion Index (EVASO)

(Operational total revenues− Collection) Operational total revenues

Dependen t Variable

Corporatize d (CORP)

1 for the companies which are listed on CVM, 0 on the contrary. -

Ownership

1 for the companies which have private management (mixed capital company with private management or private corporations), 0 for public management (mixed capital company with public

management).

-

North (NO)

1 for the companies which works on the North region, 0 on the contrary.

Control Variable

Northeast (NE)

1 for the companies which works on the Northeast region, 0 on the contrary.

Control Variable Southeast

(SE)

1 for the companies which works on the Southeast region, 0 on the contrary.

Control Variable

South (S)

1 for the companies which works on the South region, 0 on the contrary.

Control Variable

Affordability (Affor)

(Average consume 𝑝𝑒𝑟 capta ∗ Average tariff charged) Pip 𝑝𝑒𝑟 capta

Control Variable

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30 Participation

of Residential Economies

(PCR)

(Residential Consumers unit of Water + Residential Consumers unit of sewage) (Total Economies of Water + Total Economies of Sewage)

Control Variable

Density (Extension of water connection + Extension of sewage connection) Total population attended

Control Variable Participation

of Urban Population (POPURB)

(Urban population served with water + Urban population served with sewage) (Total Economies of Water + Total Economies of Sewage)

Control Variable

Coverage (COV)

1 for the companies which works in regional areas, 0 for the companies that works in local or micro regional areas.

Control Variable Source: Own Production

3.3. CONSTRUCTING HYPOTHESES

- CORPORATIZED (CORP)

The CORP variable categorized the companies which has their stocks negotiated at Market, it expected that these companies presented more efforts to guarantee their receives, according to Sato (2013), revenues evasion is related with economic efficiency, thus, those corporations want to send a “good signal” (Signaling Theory) to the Market and a high value of revenues evasion, could indicate a lack of control or practices that should guarantee the cashier of this realized service. It expected more efforts of those companies to present better indexes than the other organizations, in order to attract investors.

H1: Corporatized water and sanitation companies are associated with better collection performance.

- Ownership

Berg (2010) pointed that ownership is one of the explanatory variables most used at governance structure studies. It is noteworthy to mention that one of the problems that originate the discussion of privatization was lack of management and the presentation of bad indexes, just like mentioned by Mello (2005) when he affirms that the losses and the defaults of payments were high, on that way we can formulate that it expected better results from private management than public.

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31 Furthermore, Property Rights Theory, Agency Theory and Public Choice Theory could present another overview, which reinforce that previous point, because of the comportment of public managers/management is not allied to improve efficiently their services, instead of this they act motivated by secondary objectives, just like making decisions with a political bias. Another important matter into this situation is the main focused of the private firms they seek for profit, in general, on that way it is normal to suppose that they do more effort to guarantee their receives.

H2: Private ownership water and sanitation utilities are associated with better collection performance.

3.4 CONTROL VARIABLES

Five control variables were added to the model: four dummy variables to control the influence of the regions, in order to grasp the influence of the Brazilians different regions: North (NO) and Northeast (NE) and South (S) and Southeast (SE). Some of papers divided these variables in two categories North and Northeast (NN) and Southwest and South (SS), but in order to observe the influence of each region, for this work these regions were separated. It is well known that the North and Northeast regions are more fragile economically speaking, so, despite of social aspects behind of being defaulting, it is expected a difference between the regions. On the other hand, South and Southeast regions are well known as the strongest Brazilians region in terms of money and concentration of business, so that was one of the motives to add these variables. Other motive derived from the financial crisis occurred in 2012-2016, which could affect more intensely the ones that doesn’t have a better financial condition to afford much money with services.

The variable Affor was added trying to grasp the effect of higher taxes comparing with the economic capacity of each person (per capita) to pay, in other words, this variable measures the impact at the elasticity to pay for something, while the tariff grows at revenues evasion. Besides, the interpretation of this variable expresses the follow relation: the lower Affor value is, lower revenues evasion index is expected.

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32 The density variable tries to pick up the effect behind of net extension to provide utilities and the population, who’s attended by this system, in order to percept if economies of density can be noticed. Furthermore, just like Oliveira (2008) did in his context, bringing that to revenues evasion situation, it is important to notice the influence of cost factors behind of the default situations.

Other variables which try to notice the existence of an economic concept are:

coverage (COV), participation of residential economies that variable grasps the coverage of provided services by the companies and divided them into regional coverage and micro regional and local coverage. The economic concept which that variable aims to analyze is if economies of scale exist on that context. In the same way, Participation of Urban Population (POPURB), which measures the urban population at participating on economies of water and sanitation, also, tries to analyze if there are economies of scale occurring by this context.

3.5 STATISTICAL METHOD

The regression model that was chosen to analyze these variables relations was the Generalized Estimating Equations (GEE) regression, an extension of generalized linear models (GLM), in order to analyze longitudinal panel data (LIANG and ZEGER, 1986). This method was chosen because of the nature at dependent variable, which is time-dependent.

Referring to the model, it has some important components, which categorizes the GLM and the GEE as well, these components are: aleatory component (binomial, gamma, Gaussian, inverse Gaussian, negative binomial, poison), systematic linear component (explanatory variables) and connection function (link). Furthermore, the matrix correlation structure was included by Liang and Zegler (1986), this matrix tried to grasp which correlation structure fit better with the dataset used. That matrix correlation could be: exchangeable, independent, autoregressive (ar), stationary, nonstationary, unstructured.

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33 4. RESULTS

4.1 DESCRIPTIVE ANALYSIS

On descriptive analysis, we can notice by looking to the Table 2 that we worked with an unbalanced panel, which means that some of the variables couldn’t be collected for all of the years per company. Besides, it can be point a media of revenues evasion index between the studied companies in 6,63% with a standard deviation of 5,06% a minimum and maximum, respectively, at 0,01%

and 20,66%. Through these data it is possible to affirm that we have a considerably difference between the extremes and a difference that is almost the mean value, in terms of standard deviation. In terms of impact, we can point that 20,66% of revenues uncollected could present a management problem not just to investments which had to be done, but also to the operational matters.

Table 2 – Descriptive Analysis Variables Observations Mean Standard

Deviation

Minimum Maximum

EVASO 218 6.710826 5.253 .01 20.66

CORP 218 .1743119 .3802506 0 1

Ownership 218 .5458716 .4990373 0 1

NO 218 .0779817 .2687598 0 1

NE 218 .1513761 .35924 0 1

SE 218 .4954128 .5011297 0 1

S 218 .1376147 .345288 0 1

Affor 218 .0195108 .0121265 .0039869 .0851018

PCR 218 .8902083 .1166751 .0309994 1

Density 218 .105278 .2340394 .0001365 1.4973

POPURB 218 2.650313 .5720724 .1291557 40.04865

COV 218 .3675889 .4831043 0 1

CORP variable presented that 17,43% comprehended the Corporatized companies, which means that less than ¼ of the companies of water and sanitation utilities are listed on CVM.

Ownership variable brought that 54% of water and sanitation companies are controlled by private agents. Such as mentioned before, remuniscipalization is a worldwide subject, otherwise Brazilian water and sanitation utilities are majority controlled by private ownership, at least according to the sample used for this work.

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34 The independent variables related to the Brazilian regions presented 15,13% of the companies working on Northeast area, 7,7% at North area, 49,54% at Southeast area an 13,76% provided services to the South area.

Affor variable showed a mean value of .0195108 with a standard deviation of .0121265 of affordability. It is noteworthy that the gap between the minimum and maximum is considerably high, which could mean some problems to the citizens, because this variable presents the condition to pay for this service, so, for low income citizens it is could be a problem for guaranteeing their regular payments.

PCR and POPURB variables represent as pointed on section 3 two variables, which grasp the participation of some group, into total economies.

Referring to PCR variable, specifically, it presents that .8902083 of total economies are originated from residential economies, with a short variation of .1166751. POPURB variable showed that 2.650313 of the population responsible of those economies of water and sanitation are urban, with a considerably high difference between the minimum and maximum, which means that we have a significantly difference of urbanization if we compare the areas where the companies have worked.

Finally, the Density Variable which represented a proxy to cost showed a mean value of 10,52% and a standard deviation of 23,40%. Interpreting these results, we can affirm that some areas could ration their costs for more people, which could mean a lower tariff and a lower price to be paid for the citizens.

Besides, Coverage presented that 40,82% of the companies of water and sanitation utilities work providing services for various municipalities in the same state, bordering with each other or not.

Referring to the dependent variable, using Kernel estimate density could be found a unimodal distribution. Besides, the highest density in 2013 and 2014 represented a revenues evasion about 3% and 4%, otherwise in 2015 and 2016 that number increased a little bit reaching 5%, finally, in 2017 this number decreased back to 3% or 4%.

Figure 1 – Kernel density estimate - 2013

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35 Source: Own production

0

.02.04.06.08 .1

Density

0 5 10 15 20

EVASO

kernel = epanechnikov, bandwidth = 1.7920

Kernel density estimate

0

.02.04.06.08

Density

0 5 10 15 20 25

EVASO

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36 Figure 3 – Kernel density estimate - 2015

0

.02.04.06.08 .1

Density

0 5 10 15 20

EVASO

0

.02.04.06.08 .1

Density

0 5 10 15 20

EVASO

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37 Source: Own production

4.2 ECONOMETRIC ANALYSIS

In the section 3 was introduced the GEE method, at this method we have some Matrix Correlation Structure to categorize the model and to permit an analysis more accurate, it can be done by observing the minor Quasi Likelihood Under Independence Model Criterion (QIC), because of that the Auto Regressive (AR1) matrix correlation structure was chosen (Appendix A).

A variance inflation factor was calculated, in order to analyze the presence or not of multicollinearity and it is presented on table 3.

Table 3 – Variance Inflation Factors

Variable VIF

Coverage 4.86

Ownership 2.78

SE 2.71

NE 2.61

NO 1.86

CORP 1.82

S 1.82

POPURB 1.60

PCR 1.40

0

.02.04.06.08 .1

Density

0 5 10 15 20

EVASO