Financial performance of airport terminal companies in Japan – Harmful effects of government participation

This paper analyzes the managerial performance of domestic airport terminal buildings in Japan. Japanese airports have been constructed all over the country under the Special Account for Airport Development but few are profitable. Public-private partnership third party companies manage most terminal buildings. We show that government participation in the capitalization and governance of terminal building companies has fostered practices that impair their performance. In particular we find that airport terminal companies whose executive boards include larger fractions of retired government bureaucrats, and whose staffs include larger fractions of government workers on temporary assignment, have lower profit. We also show that terminal building companies that are audited tend to be more profitable than ones that are not.

► Japanese airport terminals are better managed if there are fewer retired civil servants in their boards.
► Regular auditing of airport terminal companies enhances their profitability.
► Having active government employees seconded to airport terminal companies for periods reduces the former's efficiency.