WHY CORPORATE GOVERNANCE IN CROATIAN SOEs MIGHT NOT REACH HIGH-PERFORMANCE EQUILIBRIUM DESPITE THE INSTITUTIONAL REFORM EFFORTS: THE CASE STUDY OF THE ENERGY SECTOR

Abstract

Croatia has substantially reformed the governance framework for its state-owned enterprises (SOEs), through the 2021 Government Action Plan and through the 2025 Law on Legal Entities Owned by the Republic of Croatia. The goal of this paper is twofold. The first goal is to show that, while these reforms address procedural and internal governance aspects, the structural drivers of agency loss remain only partially addressed. Drawing on agency theory, transaction cost economics, multi-principal political economy, and the logic of institutional complementarity, we show that the current framework is missing four key conditions, i.e., hard budget constraints, clear mandates, coordination across government levels, and market-based financing. As a result, the level of public ownership remains high compared to the OECD countries. The second objective is to show that the most likely long-term outcome is a stable but politically mediated equilibrium of moderate compliance, inefficiency, and recurring fiscal exposure. This is discussed in a case study of five SOEs in the Croatian energy sector over 2018–2024. In doing so, we combine an institutional assessment of the reforms with a structured analysis of the selected firm-level financial performance.