Corporate Governance and Sectoral Patterns of Innovation: Evidence from Italian Manufacturing Industries

The paper explores the question whether the relationship between corporate governance dimensions and innovation at the firm level is affected by sectoral characteristics, by analyzing Italian manufacturing sectors. We estimate the impact of corporate governance features on patenting activity for two sub-groups of Italian firms, identified on the basis of the well-established distinction between Schumpeter Mark I (creative destruction) and Schumpeter Mark II (creative accumulation) sectors. We use a unique dataset on about 35.000 Italian manufacturing firms over the 2002-2007 period and employ a hurdle model for zero-inflated data in order to study simultaneously (i) the firm's ability to be innovative rather than non innovative and (ii) its ability to be relatively more innovative than the other innovative firms. We find that in Schumpeter Mark I sectors, a concentrated ownership structure has a positive effect on innovation, while the opposite is true for Schumpeter Mark II sectors. We interpret this result, arguing that, in more unstable markets, a concentrated ownership reduces agency costs to a larger extent than it exacerbates asymmetric bargaining problems. We find also that Schumpeter Mark I environments are associated to a negative effect of debt exposure, due to the higher uncertainty and agency costs. These findings are robust to a number of identification issues, including the possible endogeneity of corporate ownership structures. Our results may allow to make sense of the contradictory findings of the literature on corporate governance and innovation.