economies
Article
Economic Evaluation of the Management of Municipal Firms at
the Level of Rural Local Self-Governments (Case Study)
Peter Agh l
, Roman Vavrek 2
, Marek Dvorak 3
and Viera Papcunova 4
'5
'*
1
Department of Public Administration, Faculty of European Studies and Regional Development,
Slovak Agriculture University in Nitra, 949 76 Nitra, Slovakia; peter_agh@yahoo.com
2
Department of Public Economics, Faculty of Economics, V§B—Technical University of Ostrava,
702 00 Ostrava, Czech Republic; roman.vavrek@vsb.cz
3
Department of Trade and Finance, Faculty of Economics and Management, Czech University of Life Sciences
Prague, 165 00 Prague, Czech Republic; dvorakmarek@pef.czu.cz
4
Institute of Economics and Management, Faculty of Natural Sciences, Constantine the Philosopher University
in Nitra, 949 74 Nitra, Slovakia
5
Department of Regional Economics and Administration, Faculty of Economics and Administration,
Masaryk University, 602 00 Brno, Czech Republic
* Correspondence: vpapcunova@ukf.sk; Tel.: +421-37-6408-725
check for
updates
Citation: A g h , Peter, Roman Vavrek,
Marek Dvorak, and Viera Papcunova.
2021. Economic Evaluation of the
Management of Municipal Firms at
the Level of Rural Local
Self-Governments (Case Study).
Economies 9: 130. https://doi.org/
10.3390/economies9030130
Academic Editor: Burcin Yurtoglu
Received: 28 M a y 2021
Accepted: 25 August 2021
Published: 9 September 2021
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4.0/).
Abstract: The municipality generally uses its property to perform self-governing functions, and
public or business activities. In the conditions of the Slovak Republic, the municipality operates either
as a legal entity in its own name or carries out business activities with the help of a contributory and
budgetary organization or business firm established by the municipality. Revenues from business
activities form an important part of the revenue of local self-government budgets. The aim of this
paper was an economic evaluation of the management of municipal firms at the level of rural local
self-governments in the conditions of the Slovak Republic on the basis of selected economic indicators.
At the same time, we analyzed the relationship between selected economic indicators in relation
to the size, lifespan and number of employees of the firm. The analysis was performed in the time
period 2015-2019 on a sample of municipal firms at the level of rural local self-governments. For the
analysis, we used selected mathematical-statistical methods (Shapiro-Wilk test, Kruskal-Wallis test,
and regression analysis). The analysis showed that the differences in the profitability of municipal
firms from the point of view of the region in which they operate as well as from the point of view of
the number of employees is not statistically significant. Statistical significance was not demonstrated
even within the volume of revenue of municipal firms from the point of view of the region in which
the municipal firm operates. The volume of revenues of municipal enterprises with the population of
the municipality as well as the length of time of operation on the market is growing, but these are not
the only factors on which these results depend.
Keywords: municipal firms; business; economic evaluation; local self-government; rural municipalities
1. Introduction
In several countries, especially in western and central Europe, local self-government is
independent, and direct state interference in its competences is prohibited (Aleksee 2013).
However, Zhang et al. (2020) note that when local self-governments have sufficient fiscal
autonomy, decentralizing fiscal power to sub-provincial governments is found to have
a greater impact on increasing marketization and market efficiency. Moreover, in the
environment of modern liberal democracies, there is an ever-increasing trend towards
the application of the subsidiarity system (Levický et al. 2019; Pauličková 2010). O n the
other hand, there is a theory that the provision of financial needs of local self-government
should be set in proportion to the performance of its competencies and tasks (Oplotnik
et al. 2012; Klimovský 2008). Revenues of self-governing budgets generated through
Economies 2021, 9,130. https://doi.org/10.3390/economies9030130 https://www.mdpi.com/journal/economies
Economies 2021, 9,130 2 of 17
the use of the self-governing property for business purposes contribute to increasing the
financial independence of local self-governments. In recent years, the business of local
self-governments has proved to be one of the central interests of public administration
worldwide. Local self-governments are expected to play a broad and proactive role in
supporting local economic development, in addition to performing traditional public
service functions. To achieve this, they must constantly innovate to attract talent and
investment in the process of meeting the needs of the people in their jurisdictions through
the provision of public services (Mei et al. 2016). According to Mbecke (2015), to define and
generalize the phrase municipal business is not easy at all. According to him, conducting
business in municipalities is not easy for two reasons. First, business is limited and still a
subject of research. Second, the management of public services is also an area where much
remains to be explored, including in the area of public sector business. Municipal business
is a scientific discipline that seeks to understand the extent to which local self-governments
and their representatives shape the discovery, creation, exploration, exploitation, and
diffusion of new opportunities and the economic, social, and environmental consequences.
Although public sector business capacities have not been comprehensively examined, it
is worthwhile to start with some features that can contribute to the success of business at
the local level. We can understand the business activity of the municipality in a narrower
or broader sense. In a narrower sense, we can understand the combination of "municipal
business" only as the municipality's own business activity. In a broader sense (from the
point of view of using public property), we can also understand the business activity of legal
entities established or funded by the municipality and legal entities in which municipalities
participate with property as business deposit (Hudec 2011). By conducting business,
municipalities secure part of their revenue, and at the same time, they create a competitive
environment for other entrepreneurs. Municipal firms also participate in creating activities
that are necessary for the municipality in terms of complexity. Gorzelak (2019) states
that, in addition to revenue, municipal firms also directly create job opportunities for
the inhabitants of the municipality in which the municipal firms have their registered
office, which improves the overall image of the municipality. This is also confirmed by
Babun (2020), who states that local self-government with adequate administrative and
financial autonomy has the ability to find and attract labor power for municipal firms,
which also ensures the growth of human capital in the area. Entrepreneurial activity enables
municipalities to cooperate with other municipalities to solve development programs that
they cannot implement from their own resources (e.g., construction and operation of a
municipal solid waste landfill). This form of using municipal property can be decided by
the municipal council or the mayor. The municipality is obliged to set aside the property
used for business, keep it in special records and to depreciate it in accordance with the
accounting for the municipality's business activities. Decision making in the management
of municipal property in the Slovak Republic is the competence of the municipal council
and the mayor of the municipality, who can decide on the market method or non-market
method of management. In the market method of management, local self-government
prioritizes revenue generation with the main goal of strengthening the local budget. In
non-market management, the local self-government uses the municipal property to fulfil
its competencies arising from the law, while the social characteristics of the provided
goods are preferred, and the generation of revenue has only a secondary role. According
to Bumbalova et al. (2021), the main purpose of municipal firms should be to carry
out economic activities in the public interest. O n one hand, this does not automatically
exclude activities unrelated to the competences of self-government; on the other hand,
self-government favors the achievement of social well-being over profitability.
2. Theoretical Background
The theory of business emerging in the public sector is an unmistakable sign that
it is difficult to draw the line between the private and public sectors. Additionally, the
municipal firm is one of the elements that, by nature, are located at the intersection between
Economies 2021, 9,130 3 of 17
these two sectors (Bumbalová 2011). This is also confirmed by Vinnari and Nasi (2008), who
state that municipal firms in Finland are, therefore, explicitly at the intersection of private
and public organizations, as they fulfill primary commercial objectives, are an integrated
organizational unit of local self-government and are covered by local legislation. However,
Pirošík (2014) notes that i n such a firm there may be a possible conflict of public and
private interest. He states this in the example of Slovak municipal firms. Slovak legislation
does not prohibit the combination of the performance of functions in the legislative and
executive bodies of the municipality with activities in municipal firms. Although such
a situation is often desirable, especially in the case of the mayor, as he is the statutory
body of the municipality and bears direct responsibility for it, it is not possible to overlook
the related problems that arise. These elements are contained in the concept of the socalled
municipal firm, which Stoilova (2010) and Fil'a et al. (2020) define as an entity
engaged in economic activities that are beneficial for society but unprofitable for the private
sector; beneficial to the private sector, but cannot be implemented by that sector; natural
monopolies. This is also confirmed by the research of Bumbalová and Balážová (2014), who
note that approximately half of municipal firms are engaged in activities directly related to
self-government competencies, and the other half of firms have differently oriented main
subjects of activity. However, the direct provision of public services for the inhabitants,
which were identified in the questionnaire as municipal services, was mentioned by only
9% of firms, another 13% stated a combination of municipal services and another focus. It
follows that municipalities do not set up their municipal firms primarily for the purpose
of providing services to the inhabitants, but search for ways to manage property (33% of
firms), or try to generate their own funds through profits of firms operating in the market,
outside the sphere of public services. This is also confirmed by Klimovský (2008), who notes
that under certain conditions, municipal firms are governed by the motive of profit and
competitiveness. This is also confirmed by Stoilova (2010), according to whom municipal
firms are able to profitably produce goods and provide services and also compete in the
conditions of the private sector. Another confirmation of this is by Clifton et al. (2010),
who state that some municipal firms in Italy have managed to achieve such a degree of
competitiveness that they have also penetrated global markets (e.g., energy companies
from Milan and Brescia), and their stocks have appeared on the stock exchange. However,
Bumbalová (2011) notes that in the case of municipal firms, the profitability aspect may not
play a key role. Municipalities often seek to provide local public services for inhabitants
through a municipal firm. It is precisely this role that is the base of these firms, as opposed
to firms operating in a competitive private sector. The framework of the private sector,
therefore, does not seem to be a completely satisfactory context for the placement of the
term "municipal firm". It is in this context of several different views of the authors on the
municipal firm that we decided to focus in our research on the profitability of municipal
companies in terms of individual identification factors (region, number of employees,
municipality size, and longevity).
Hypothesis 1 (HI). We assume statistically significant differences in the profitability of municipal
firms in terms of individual identificationfactors (a—region and b—number of employees).
Hypothesis 2 (H2). We assume a statistically significant linear dependence of the profitability of
municipal firms on individual identificationfactors (a—size of the municipality and b—longevity).
Folster et al. (2016) adds that some municipalities have a large number of municipal
firms, which on the one hand, provides private consumption and, on the other hand,
competes with private firms or tries to push private firms out of the market. Nevertheless,
it is possible to perceive a municipal firm from the point of view of building local
self-government for several key reasons: they create stable and quality jobs for community
members; they increase local economic stability by reducing local self-government dependence
on private firms; they often provide goods and services to areas lacking access that
are overlooked for profit-only service providers; they often provide goods and services
Economies 2021, 9,130 4 of 17
to local people at a lower cost than providers providing profit-only services; they generate
new local revenues that can be used for other self-government expenses; they often
provide greater reliability transparency and democratic control than providers providing
profit-only services (Community-Wealth O R G 2018). Achieving and adhering to all of
the abovementioned principles is not an easy task in the environment of municipalities.
From a theoretical point of view, these problems are dealt with in business theory, which is
understood as a critique of the bureaucratic approach to public administration. The basis of
this theory is to find a way to systematically avoid a collision between allocation economy
and efficiency, on one hand, and inefficiency of use, on the other. The starting point is in
the environment of business management (Osborne and Gaebler 1993). Kraftova (2002)
devotes much of her own theory to a municipal firm, stating that it is an economic entity
that provides products without a profit motive and without the driving force of market
competition. O n the other hand, she argues that since these firms operate through the use
of public resources, which are very limited, they need to be managed efficiently. Through
the effectively implemented business activities of the municipality, it is possible to obtain
additional resources to ensure the needs for the performance of self-government and the
production of local public goods or services. Financial resources obtained from businesses
can be reused in the expansion of the implemented business activities or in the expansion,
reconstruction and modernization of municipal property (Takac 2006). Municipal firms
are, therefore, a fundamental part of the business activities of municipalities. The business
activity of the municipality represents a tool for creating suitable economic conditions for
the development of business activities in the private sector (Orszaghova and Greganova
2018; Smutka and Steininger 2016). Arapis (2013) states that these firms have helped the
government in various ways at all levels, including building infrastructure, stimulating
economic growth, providing public services and diversifying government revenue sources.
Grossi and Reichard (2008) state that the trend in several European countries is relatively
high employment in municipal firms, e.g., in Germany, almost 50% of the municipality's
labor power work in municipal firms, and in Italy, it is almost 30%. In Sweden, 34% of the
total number of employees of state-owned enterprises work in municipal firms (PWC 2015).
Valach and Bumbalova (2020) state that in the Slovak Republic, the largest group (51.23%)
consists of municipal firms with less than 10 employees. Based on this indicator, such firms
belong to so-called microfirms. In contrast, there are only five municipal firms with more
than 250 employees. In this context, in our research, we focused on the evaluation of the
sales of municipal companies in terms of individual identification factors (region, number
of employees, municipality size and longevity).
Hypothesis 3 (H3). We assume statistically significant differences in the sales of municipal firms
in terms of individual identification factors (a—region and b—number of employees).
Hypothesis 4 (H4). We assume a statistically significant linear dependence of the volume ofsales
of municipalfirms on individual identification factors (a—municipality size and b—longevity).
The establishment of a successful business in local self-governments is not only
an ambitious but also an important step in maximizing the provision of services at the
local level (Mbecke 2015). However, Rundesova (2008) expressed the opinion that many
municipalities are in fact "forced" into business activities, which means that they allegedly
carry out business activities "voluntarily by force", although ultimately, they increase their
welfare. Therefore, according to Halasek et al. (2002), it is necessary for municipalities to
make very careful decisions about the business activities of municipalities. The municipal
authorities should have access to an analysis of the management of the municipal firm
in order to reduce the level of risk to a minimum so that the property of the municipality
invested in the joint venture is not impaired. Bumbalova (2011) notes that, among the
most frequently used organizational and legal forms of entities that municipalities base
on the implementation of business activities, are limited liability companies and joint
stock companies. Valach and Bumbalova (2020) state that the vast majority of Slovak
Economies 2021, 9,130 5 of 17
municipal firms have the legal form of a limited liability company, while in more than
60%, their capital does not exceed E U R 50,000. Sykora (2021), however, adds that the
municipality is not obliged to create a specific liability company or joint stock company as
a legal entity for the performance of business activities. Kuoppakangas (2013) also adds
that, in accordance with legislation and policies adopted at the municipal level, these firms
can use their own resources to support their development goals, even without the consent
of the political actors involved, but only within the limits explicitly stated in the statutes.
However, according to Kalihak (2016), it is important to emphasize that the purpose of
the business activities of municipal firms should not only be financial profit, but also
non-financial profit. This means that their activities should increase the scope and quality
of services provided in the framework of public benefit activities. Among some of the
benefits of setting up a municipal firm according to Ledecky et al. (2014) are the cheapening
and improvement of public services; emergency workers are "always at hand" in case of
accidents and emergencies; a source of interpersonal relationship; irreplaceable help in
organizing cultural sports and social life; starting and improving the business environment;
the use of municipal resources; and the fact that the municipal firm is an important part of
the development of the municipality. O n the other hand, Roncak and Mateickova (2011)
claim that the area of municipal firms is one of the areas that is the least controlled by
the public. This increases opportunities for corrupt and non-transparent behavior (e.g.,
the process of creating firm bodies, rules for hiring firm employees, the method of public
procurement and prices of selected commodities) of representatives of municipal firms.
3. Methodology
In the conditions of the Slovak Republic, the municipality can conduct business
activities as a legal entity in its own name (mainly in the case of smaller municipalities),
with the help of a contributory/budgetary organization, or as a business firm established
by the municipality. The municipality can also use its property to support the business
activities of other entities located in its territory.
The aim of this paper was the economic evaluation of the management of municipal
firms at the level of rural local self-governments under the conditions of the Slovak Republic
on the basis of selected available economic indicators—profitability and volume of sales.
At the same time, we analyzed the relationship between these economic indicators and
the size of the firm, longevity, or number of employees. For this purpose, we set research
hypotheses, through which we tested the relationships between individual factors or
differences based on them.
To answer the research question using the second economic indicator (volume of
sales), one research hypothesis (H2) is defined, which is verified by means of four partial
hypotheses focusing on individual identification factors as follows:
The individual hypotheses are processed in a dataset of 137 municipal firms with the
following characteristics (see Table 1).
Table 1. Description of the selected variables.
Variable Year Average Median Coefficient of Variance (%) Range
2015 10,796 626 558.42 649,672
2016 13,680.7 872 524.98 651,041
Profit 2017 13,342.7 798 572.60 875,153
2018 12,021.1 852 652.28 704,251
2019 8299.64 131 906.48 668,581
2015 238,182 80,129 146.24 1.87 x 106
2016 245,704 89,364 142.69 1.83 x 106
Sales 2017 260,714 94,816 148.43 1.93 x 106
2018 275,617 87,213 152.65 2.43 x 106
2019 271,957 86,234 155.57 2.51 x 106
Source: own processing.
Economies 2021, 9,130 6 of 17
Defining individual research hypotheses determines the apparatus of mathematicalstatistical
methods that are used for their evaluation. The basis was the verification of the
normal distribution by means of the Shapiro-Wilk test (see Vavrek et al. 2020):
sw = — ( £
> _ 2 (1)
E uf E (xi - x)
where: inconstant;
x,value of z'-th statistical unit;
xaverage value of variable.
Due to the nature of the data for the evaluation of partial hypotheses (HI a, H l b , H3a,
H3b), the Kruskal-Wallis test was used:
12 1
T2
Q=~( T T E - - 3
( M
+ 1
) (2)
n(n — 1) r-rf n,where:
nnumber of observations and sample size, respectively;
wmumber of observations in z'-th group;
T?total number of orders in the z'-th group.
Due to the nature of the data for the evaluation of partial hypotheses (H2a, H2b, H4a,
H4b), a simple regression linear model calculated using the least squares method was used,
while the explanatory value of the regression linear model thus created was verified using
the coefficient of determination:
R2
= g = 1
fo-ft) (3)
E L i (yr-yf
where: y,measured value of dependent variable;
^estimated value of dependent variable;
^estimated value of dependent variable.
A l l analyses and calculations were processed using M S Excel, Statistica 13.4 and
Statgraphics XVIII.
The reason for choosing rural municipalities is the fact that according to the O E C D ,
the Slovak Republic is a rural country and the majority of the population lives in the
countryside. This is also confirmed by Table 2, which shows that of the total number of
municipalities in the Slovak Republic (2890), rural municipalities make up 95.33%, which
represents 2755 municipalities out of the total number. There are 2,526,748 inhabitants i n
rural municipalities, who represent 46.30% of the total inhabitants of the Slovak Republic.
Table 2. Number of municipalities and number of inhabitants in municipalities in Slovak Republic on 31 December 2019.
Size Group Number of Municipalities Number of Inhabitants
199 inhabitants or less 415 51,743
From 200 to 499 inhabitants 710 247,719
From 500 to 999 inhabitants 755 538,214
From 1000 to 1999 inhabitants 570 800,062
From 2000 to 4999 inhabitants 305 889,010
From 5000 to 9999 inhabitants 63 425,207
From 10,000 to 19,999 inhabitants 34 480,213
From 20,000 to 49,999 inhabitants 28 799,759
From 50,000 to 99,999 inhabitants 8 549,627
From 100,000 and more inhabitants 2 676,319
Total number of municipalities 2890 5,457,873
Total number of municipalities up to 5000 inhabitants (rural municipalities) 2755 2,526,748
% share of municipalities up to 5000
95.33 46.30
inhabitants on total number of municipalities
95.33 46.30
Source: Statistical Office of the Slovak Republic, own processing.
Economies 2021, 9,130 7 of 17
In addition to being a rural country, the Slovak Republic is also characterized by a
fragmented settlement structure (see also Vavrek 2015). This is also confirmed by Table 3,
which shows that in terms of the number of small municipalities with less than 5000 inhabitants,
most of them are located in the Prešov region, while the least rural municipalities are
in the Bratislava region. The presence of a large number of small rural municipalities also
has an impact on the overall economy of the region. In the Bratislava region, where the
least small municipalities are located, the largest regional GDP per capita is generated. The
Prešov region, with the largest number of municipalities with less than 5000 inhabitants,
generates three times less regional GDP compared to the Bratislava region.
Table 3. Demographic and economic characteristics of Slovak regions on 31 December 2019.
Region
Number of Rural
Municipalities
Number of
Inhabitants in Rural
Municipalities
Number of Municipal
Firms in Rural
Municipalities
Regional GDP
(EUR Million)
Regional GDP
Per Inhabitant
(EUR)
Bratislava region (BA) 61 110,955 14 26,379.564 50,428.546
Trnava region (TT) 236 308,038 34 10,840.655 24,395.099
Trenčín region (TN) 261 277,048 50 8109.887 17,600.876
Nitra region (NR) 337 360,407 28 9940.255 18,697.530
Žilina region (ZA) 293 337,077 34 10,658.802 19,578.118
Banská Bystrica region (BB) 496 315,705 58 8175.239 16,064.697
Prešov region (PO) 646 451,834 61 8753.769 13,468.749
Košice region (KE) 425 365,684 39 11,007.006 17,459.668
Source: Statistical Office of the Slovak Republic, own processing.
In these rural municipalities (up to 5000 inhabitants), a total of 318 municipal enterprises
were registered in 2021, based on data from the Register of Financial Statements. Most
municipal firms were based in the Prešov region, and the least number in the Bratislava
region. However, the base file database also included municipal firms with an incomplete
range of data, municipal firms in bankruptcy or municipal firms that have already ceased
to exist. For this reason, we decided to analyze a sample of municipal firms in the time
period 2015-2019. A sample consisting only of municipal firms that fulfilled the following
parameters was used: data are available for the entire reference time period 2015-2019;
the entity is not in bankruptcy; the subject did not cease to exist on 1 January 2021 and is
performing its activity, i.e., is active. The number of municipal firms which fulfilled all of
the abovementioned parameters was 137.
4. Results and Discussion
In the conditions of Slovakia, the municipality as a legal entity has the right to conduct
business through any form in accordance with act no. 513/1991 Coll.—Commercial Code
as amended. Pursuant to the provisions of the Commercial Code, as of its entry into
force on 1 January 1992, commercial firms may also be established by municipalities. The
municipality can establish a business firm as the sole shareholder or as the sole companion.
In such a case, the competence of the general meeting is performed by the statutory body
of the municipality, which is the mayor of the municipality. The advantage of this form of
management is that the municipality, based on the use of its own property for business
purposes, can simultaneously ensure revenues to the municipal budget and also solve
the problem of unemployment. The problem with this form of conducting business with
municipal property is the big concentration of decision-making power of the mayor, who,
on the one hand, acts as the statutory body of the municipality and, on the other hand,
acts as the statutory body of the firm. It follows that, in the process of such a two-pronged
decision, he may give priority to his private interest over the public interest. This form
of business can lead to the targeted privatization of municipal property. In practice, only
capital firms are appropriate for municipalities. According to the Commercial Code, a
limited liability company can also be established by one person, and the company can
have a maximum of 50 partners. The company is responsible for its liabilities with all
its assets, and the partner is liable for the company's liabilities up to the amount of its
Economies 2021, 9,130 8 of 17
unpaid deposit entered in the Commercial Register. The value of the share capital must be
at least EUR 5000; this share capital consists of cash and non-cash deposits, and the value
of the shareholder's contribution must be at least E U R 750. If the company is founded
by one founder, the base is a founding agreement; if there are several founders, then a
partnership agreement is written. In the case of the participation of a municipality in
such a company, the founding or social contract is signed by the mayor only with the
consent of the municipal council. In this context, we consider it necessary to state that in
some companies in which the municipality has an ownership interest, a larger number
of partners in the position of various natural and legal persons can participate. Several
companies are also registered, where only municipalities are the exclusive partners, in
various numbers. A n example of a large number of partners can be a company registered
by the District Court of Nitra, which unites up to 12 municipalities, and whose subjects
of business are mainly activities necessary for municipalities, e.g., waste management,
construction activity, operation and maintenance of water supply and sewerage network.
Other companies are registered by the District Court of Kosice I, which concentrates
18 municipalities and whose subject of business is, in addition to waste management and
production (Hudec 2011). Although these companies operate in a competitive market
environment, their important mission is often to provide services to the population. Their
purpose is not only financial gain, but also non-financial profit. This means that, in addition
to financial gain, their activities can increase the scope and quality of services provided
in the framework of public benefit activities. However, if they focused only on providing
services to the inhabitants, and managing loss, the result would be the devaluation of
municipal property and eventual bankruptcy. The profitability of municipal firms in
individual regions of the Slovak Republic in 2019 is shown in Figure 1. We can observe
differences mainly at the level of individual entities, not the group as a whole, which
captures the occurrence of remote (or extreme) observations in all regions except the
Bratislava region (BA).
670.000
470,000
—i
o
*g 270,000
&
70,000
-130,000
B A TT NR TN B B Z A PO K E
Region
Figure 1. Profitability of municipal firms: by region, 2019 (hypothesis la). Source: own processing.
Statistically significant differences using the Kruskal-Wallis test (Table 4) indicate a
different situation in the individual analyzed years, while in 2018 and 2019, the differences
between the regions were not demonstrated.
Figure 2 shows the profitability of municipal firms according to the number of employees
in 2019 (or size groups). The majority of firms are relatively balanced, but graphic
differences can be identified in the number of remote (or extreme) values in individual
groups, and in the municipal firms with significantly better or worse results compared to
the results of others in the given size group.
Economies 2021, 9,130 9 of 17
Table 4. Results of verification of research hypothesis la.
Year Kruskal-Wallis Test
2015 Q == 9.106; p =0.245
2016 Q == 21.024; p<0.05
2017 Q =--16.180; p <0.05
2018 Q =-- 0.229; p =0.265
2019 Q =-- 3.920; p =0.799
Source: own processing.
670,000
470,000
s
.g 270,000
c
70,000
-130.000
< 10 10-19 20-50 not identified
Size groups of employees
Figure 2. Profitability of municipal firms by number of employees in 2019 (hypothesis lb). Source:
own processing.
Differences in the mean value of profitability of individual groups of municipal firms
(using the Kruskal-Wallis test) proved to be statistically significant only in the first of the
evaluated years—in 2015. In other years, we did not register differences between municipal
firms (see Table 5).
Table 5. Results of verification of research hypothesis lb.
Year Kruskal-Wallis Test
2015 Q = 9.639; p < 0.05
2016 Q = 6.879; p = 0.075
2017 Q = 4.807; p = 0.186
2018 Q = 7.508; p = 0.057
2019 Q = 2.754; p = 0.431
Source: own processing.
Based on the above, it is not possible to confirm partial research hypothesis la, which
means that differences in the profitability of municipal firms from the point of view of
the region in which the municipal firm operates are not statistically significant. The same
conclusion can also be stated in the case of partial research hypothesis l b , when the
differences in the profitability of municipal firms in terms of the number of employees are
also not statistically significant. Based on this evaluation of partial research hypotheses l a ,
lb, we also reject research hypothesis 1.
In partial research hypothesis 2a, we assume the dependence of the profitability of
municipal firms on the size of the municipality i n which the municipal firm is located,
while the degree of this dependence i n 2019 is shown in Figure 3. This dependence can
be expressed by a linear regression model with Profit = 0.92936 x number inhabitants
(R2
= 0.09%).
I
Economies 2021, 9,130 10 of 17
670,000 F
470,000
™ 270,000
70,000
-130,000
4000 6000
Number of inhabitants
10,000
Figure 3. Dependence of profitability of municipal firms on the size of the municipality in 2019
(hypothesis 2a). Source: own processing.
In the individual analyzed years 2015-2019, we observe similar results, while each
time the dependence of profitability on the number of inhabitants is positive, it means
as the population of the municipality grows, so does the profitability of municipal firms
in this municipality (Table 6). However, the regression models themselves reach a low
significance value expressed by the coefficient of determination.
Table 6. Results of verification of research hypothesis 2a.
Year Linear Regression Function R2
(%)
2015 Profit = 3.1774 x number of inhabitants 1.70
2016 Profit = 3.88885 x number of inhabitants 1.78
2017 Profit = 3.54442 x number of inhabitants 1.32
2018 Profit = 1.61885 x number of inhabitants 0.26
2019 Profit = 0.92936 x number of inhabitants 0.09
Source: own processing.
Within the second partial research partial hypothesis 2b, we assume an increase in
profitability together with an increase in the time of operation of the municipal firm on the
market—its longevity. The results in 2019 shown in Figure 4 and the regression function
P2019 = 1-84035 x longevity indicate a positive dependence, which is, however, influenced
by other factors that are not included in this model (R2
= 2.74%).
670,000 -
470,000 -
<3\
270,000
O
70,000
-130,000
4000 6000 8000
Loneevitv
10,000 12,000
Figure 4. Dependence of profitability of municipal firms on its longevity in 2019. (hypothesis 2b).
Source: own processing.
Economies 2021, 9,130 11 of 17
As in the previous case, in the individual analyzed years, 2015-2019, we can see similar
results, while each time the dependence of profitability on the longevity of municipal firms
on the market is positive, this means that the number of days a municipal firm operates on
the market increases its own profitability (Table 7). Such an interpretation of the results is
also influenced by their low explanatory power, as the variability of the dependent variable
is significantly influenced by other factors.
Table 7. Results of verification of research hypothesis 2b.
Year Linear Regression Function R2
(%)
2015 Profit = 2.11042 x longevity 5.49
2016 Profit = 2.55875 x longevity 5.67
2017 Profit = 2.19967 x longevity 3.72
2018 Profit = 2.37349 x longevity 4.14
2019 Profit = 1.84035 x longevity 2.73
Source: own processing.
Based on the above, especially very low values of the coefficient of determination (R2
),
it is not possible to confirm the linear dependence of the profitability of municipal firms on
the size of the municipality in which the municipal firm is located, and so partial research
hypothesis 2a cannot be confirmed. We also observe very low values of the coefficient of
determination in the case of the second partial research hypothesis 2b, so similarly, partial
research hypothesis 2b cannot be confirmed. Based on this evaluation of partial research
hypotheses 2a, 2b, we also reject research hypothesis 2.
The volume of sales of municipal firms in 2019 by individual regions is shown in
Figure 5. With the exception of the Bratislava region (BA), we observe municipal firms in
each of the regions, whose results deviate from other results in individual regions, which
can be described as remote and extreme values, respectively.
3.000.000
2,500.000
g 2.000.000
.a
J 1.500,000
vi
1.000,000
500,000
0
B A TT N R T N B B Z A PO K E
Region
Figure 5. Volume of sales of municipal firms by region, 2019 (hypothesis 3a). Source: own processing.
The occurrence of such municipal firms with different results persists across the years
2015 to 2019, which we label as homogeneous. The differences between the individual
regions did not prove to be statistically significant or stable, which we deduce from the
absolute values captured in Table 8.
Based on Figure 6, we can state that with the growth of the number of employees
(size group), the volume of sales of municipal firms also increases. The results, with the
exception of the first group (up to 10 employees), are relatively balanced, as we do not
observe the occurrence of remote (or extreme) results.
Economies 2021, 9,130 12 of 17
Table 8. Results of the verification of research hypothesis 3a.
Year Kruskal-Wallis Test
2015 Q = 12.015; p = 0.100
2016 Q = 12.274; p = 0.091
2017 Q = 11.775; p = 0.108
2018 Q = 10.407; p = 0.166
2019 Q = 10.043; p = 0.186
Source: own processing.
3.000,000
2,500,000
~ 2.000,000
.5
JS 1,500,000
"ro
1,000,000
500,000
0
< 10 10-19 2 0 - 5 0 not identified
Size groups of employees
Figure 6. Volume of sales of municipal firms by number of employees in 2019 (hypothesis 3b). Source:
own processing.
Differences in the mean value of the volume of sales of individual size groups (using
the Kruskal-Wallis test) proved to be statistically significant in each of the evaluated years,
2015, 2016, 2017, 2018 and 2019. The size of the municipal firm is, therefore, a factor
influencing the volume of sales (see Table 9).
Table 9. Results of verification of research hypothesis 3b.
Year Kruskal-Wallis Test
2015 Q = 74.183; p < 0.05
2016 Q = 89.893; p < 0.05
2017 Q = 87.801; p < 0.05
2018 Q = 86.206; p < 0.05
2019 Q = 87.100; p < 0.05
Source: own processing.
Based on the above, it is not possible to confirm partial research hypothesis 3a—the
differences in the volume of sales of municipal firms from the point of view of the region
in which the municipal firms operate are not statistically significant. The exact opposite
conclusion can be stated in the case of research hypothesis 3b—the differences in the
volume of sales of municipal firms in terms of the number of employees are statistically
significant. Therefore, based on the evaluation of partial research hypotheses 3a, 3b, it is
not possible to unequivocally reject or confirm research hypothesis 3. This conclusion is
also confirmed by the research of municipal firms in Sweden. Municipalities in this country
employ on average 18% of the country's total workforce. In some municipalities, where
municipal firms focus on social services in relation to the elderly or children, this share
can be much higher, even at the level of 30%. If municipalities do not create municipal
firms, but create conditions for business activities of private firms, this share is much lower.
However, in such a case, there is no statistically significant correlation between employment
in municipalities and employment in the vicinity of the municipality in terms of population
density (Folster et al. 2016). The situation is similar in all historical regions of Poland,
Economies 2021, 9,130 13 of 17
where more than four-fifths of local self-governments have taken measures to increase the
number of local jobs, two-fifths of which were municipalities in Greater Poland. This area
thus pursued a more dynamic development policy through the development of municipal
business activity (Gorzelak 2019). Within partial research hypothesis 4a, we assume the
dependence of the volume of sales of municipal firms on the size of the municipality in
which the municipal firm is located (as well as in the case of their profitability). The degree
of this dependence in 2019 is shown in Figure 7, while it can be expressed by a linear
regression model with a function i n the form S2019 = 85.1138 x number of inhabitants of
the municipality (R2
= 18.07%).
3,000,000
2,500,000
2 2,000,000
0
r j
1 1,500,000
v
^' 1,000,000
500,000
0
0 2000 4000 6000 8000 10,000
Number of inhabitants
Figure 7. Dependence of profitability of municipal enterprises on the size of the municipality in 2019
(hypothesis 4a). Source: own processing.
In the individual analyzed years, 2015-2019, we observe similar results, while each
time the dependence of profitability on the number of inhabitants is positive, it means that
with the growth of the population in the municipality, the volume of sales of municipal
firms in this municipality is also growing (Table 10). L o w values of the coefficient of
determination (R2
) indicate that the volume of sales of municipal firms is significantly
influenced by other factors, not only the number of inhabitants in the municipality.
Table 10. Results of verification of research hypothesis 4a.
Year Linear Regression Function R2
(%)
2015 Sales = 76.7863 x number of inhabitants 20.89
2016 Sales = 79.7422 x number of inhabitants 21.88
2017 Sales = 81.4638 x number of inhabitants 19.23
2018 Sales = 88.4628 x number of inhabitants 19.51
2019 Sales = 85.1138 x number of inhabitants 18.07
Source: own processing.
The second partial research hypothesis 4a assumes an increase in the volume of sales
together with an increase in the time of operation of the municipal firm on the market—its
longevity. The results in 2019 shown in Figure 8 and the regression function S2019 = 42.5075
x longevity illustrate positive dependence, which, however, can be marked as partial
(R2
= 33.02%).
In the case of partial research hypothesis 4b, we can see similar results in the individual
analyzed years, 2015-2019, while the dependence of the volume of sales on the time of
operation on the market (longevity of municipal firm) is significantly positive. A s the
number of days a municipal firm operates on the market increases, so does its profitability
(Table 11).
Economies 2021, 9,130 14 of 17
3,000,000
2,500,000
2 2,000,000
0
cs
1 1,500,000
M
1,000,000
500,000
0
0 2000 4000 6000 8000 10,000 12,000
Longevity
Figure 8. Dependence of the volume of sales of municipal firm on its longevity in 2019 (hypothesis
4b). Source: own processing.
Table 11. Results of verification of research hypothesis 4b.
Year Linear Regression Function R2
(%)
2015 Sales = 38.0766 x longevity 37.63
2016 Sales = 38.5564 x longevity 37.48
2017 Sales = 40.6697 x longevity 35.11
2018 Sales = 43.1727 x longevity 34.05
2019 Sales = 42.5075 x longevity 33.02
Source: own processing.
Based on the above, especially the very low values of the coefficient of determination
(R2
), it is not possible to confirm the linear dependence of the volume of sales of municipal
firms on the size of the municipality in which the municipal firm is located. Therefore,
partial research hypothesis 4a cannot be confirmed. The same conclusions are drawn in
the case of the second partial research hypothesis, when we observe low values of the
coefficient of determination, so partial research hypothesis 4b cannot be confirmed. The
volume of sales of municipal firms with the population of the municipality as well as the
time of operation on the market is growing, but these are not the only factors on which
these results depend. Based on such an evaluation of partial research hypotheses 4a, 4b,
we also reject research hypothesis 4.
5. Conclusions
In the Slovak Republic, rural areas represent 86% of the territory in which 43% of
the population live. It is a heterogeneous area in which natural, human and economic
resources are used. The Slovak countryside is characterized by a highly diverse physical
environment, a wide range of economic activities, a characteristic network of social relations
and centuries-old cultural traditions.
Economic activities in rural municipalities are developed not only by the private sector,
but also by the municipalities themselves through their municipal firms. Analyses showed
that in 2021, 318 municipal firms had their headquarters in rural municipalities. In the
analysis of mutual relations of the most important economic indicators, profit and sales
and number of employees, longevity or size, we found that differences in the profitability
and sales volume of municipal firms from the perspective of the region in which the
municipal firm operates are not statistically significant. It is also not possible to confirm
the linear dependence of the profitability of municipal firms on the size of the municipality
in which the municipal firm is located. However, it is possible to confirm the positive
dependence between the growth of the population of the municipality and the growth of
sales of municipal firms based in this municipality. However, low values of the coefficient
Economies 2021, 9,130 15 of 17
of determination (R2
) indicate that the volume of sales of municipal firms is significantly
affected by other factors, not only the number of inhabitants of the municipality.
The results of the analysis confirm the fact that general enterprises are specific in
comparison with traditional business entities, and it is not possible to analyze them with the
general common ratio indicators of financial analysis, such as profitability indicators: ROE
and ROA; indicators of activity; indicators of indebtedness; market value or liquidity. These
indicators are of large importance from the point of view of comparing business entities,
but from the point of view of municipal firms, they are not sufficiently informative, as the
reasons for establishing municipal enterprises are different from those of commercial firms.
While the business sector creates firms that it knows will make a profit as they provide
services and goods that are in demand, it is different for municipal firms. Municipal firms
often also provide services that the private sector does not want to provide precisely due to
low profitability (e.g., small community services). Municipal firms are established primarily
for the purpose of providing services to the population and creating jobs, and only then
are they created for profit. The profit and revenue indicators that we analyzed in the case
of municipal firms are important from the point of view of their sustainability, but also
from the point of view of the financial management of municipalities. Through revenues,
municipal firms cover their costs and thus reduce their dependence on the municipal
budget, as in the event of a decrease in revenue, the municipality usually subsidizes such
enterprises through subsidies from its budget. There are similar differences in the case
of profit. Part of the profit is invested by municipal firms and part of it flows into the
municipal budget. In this way, municipal firms play a significant role in the socio-economic
development of the municipality.
Although the business activity of rural municipalities implemented through municipal
firms enables revenues to the local budget, the area of business with municipal property is
generally not given much attention under the conditions of the Slovak Republic. The reason
for this is that there is no system for classifying firms owned by local self-governments.
Likewise, legislation at the national but also at the local level does not recognize the concept
of a municipal firm and its operation. The results of the analysis confirm that municipal
firms are an important part of the local economy and, therefore, it would be appropriate
to legislate the existence and functioning of municipal firms as a special form of business
with local self-government property. A s inspiration for legislation, we recommend E U
legislation, which defines the concept of a public firm in Articles 106 and 345, Treaty on
the Functioning of the E U , as a firm over which public authorities have a direct or indirect
dominant influence.
The results of the analysis also showed that municipal firms, in addition to revenues to
the local budget, also create employment in the municipality with a direct impact on local
economic development. Nevertheless, insufficient information is available to assess social
and other effects of municipal firms. Research in the field of municipal firms under the
conditions of the Slovak Republic is still in its infancy. It can be assumed that in the future,
other aspects of municipal business could be included in the model and examined, e.g.,
the Statistical Classification of Economic Activities is fully compatible with the European
classification N A C E Revision 2 (SK NACE), property information, demographic data and
macroeconomic data of individual regions or districts.
By analyzing selected indicators, we aimed to highlight the specificity of business of
municipal firms under the conditions of the Slovak Republic. The database for municipal
firms is very limited, despite the fact that these firms are an important factor in the
development of the territory. Therefore, in order to make the functioning of municipal
firms more efficient, their activities and economic stability should be regularly monitored
and evaluated, especially from the point of view of local development. Also, to clearly
define the legislation adopted at the local level (resolution of the municipal council and
principles on the disposal of municipal property), because the municipality's property
creates not only economic but also social conditions in the municipalities.
Economies 2021, 9,130 16 of 17
Author Contributions: Conceptualization, P.Á. and V.P.; methodology, R.V. and VP.; software,
R.V.; validation, PÁ., R.V., M.D. and V P ; formal analysis, PÁ., R.V., M.D. and V P ; investigation,
PÁ., R.V., M.D. and V P ; resources, PÁ., R.V., M.D. and V P ; data curation, R.V.; writing—original
draft preparation, P.A., R.V., VP. and M.D.; writing—review and editing, P.A., R.V., M.D. and V P ;
visualization, PA., R.V., M.D. and V.P; supervision, V.P and M.D.; project administration, PA. and
V P ; funding acquisition, R.V. All authors have read and agreed to the published version of the
manuscript.
Funding: This research was funded by the Student Grant Competition in VSB - Technical University
of Ostrava, grant number SP2021/18.
Acknowledgments: We would like to thank the anonymous referees for their useful comments and
constructive suggestions.
Conflicts of Interest: The authors declare no conflict of interest.
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