IDEAS home Printed from https://ideas.repec.org/p/itt/wpaper/wp2012-10.html
   My bibliography  Save this paper

Ownership Structure, Governance, and Innovation: Evidence from Italy

Author

Listed:
  • Raoul Minetti
  • Pierluigi Murro
  • Monica Paiella

Abstract

This paper tests the impact of firms’ ownership structure on firms’ innovation decisions using a rich dataset of about 20,000 Italian manufacturers. After accounting for its possible endogeneity, we find that ownership concentration negatively affects the probability of innovation, especially by reducing firms’ R&D effort. The analysis reveals that conflicts of interest between large and minority shareholders are a determinant of the negative effect of ownership concentration on innovation. Moreover, risk aversion induced by lack of financial or industrial diversification appears to be an additional source of large shareholders’ reluctance to innovate. Once we distinguish across types of shareholders, we uncover some evidence that families support innovation more than financial institutions, but that the benefits of financial institutions for technological change increase with their equity stakes. Collectively, the findings suggest that innovation is a channel through which agency problems among shareholders influence firm performance.

Suggested Citation

  • Raoul Minetti & Pierluigi Murro & Monica Paiella, 2012. "Ownership Structure, Governance, and Innovation: Evidence from Italy," Working Papers 10, Department of the Treasury, Ministry of the Economy and of Finance.
  • Handle: RePEc:itt:wpaper:wp2012-10
    as

    Download full text from publisher

    File URL: http://redazionecms.tesoro.it/modules/documenti_it/analisi_progammazione/working_papers/WP_N._10-2012.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Stein, Jeremy C, 1988. "Takeover Threats and Managerial Myopia," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 61-80, February.
    2. Gustavo Manso, 2011. "Motivating Innovation," Journal of Finance, American Finance Association, vol. 66(5), pages 1823-1860, October.
    3. Philippe Aghion & John Van Reenen & Luigi Zingales, 2013. "Innovation and Institutional Ownership," American Economic Review, American Economic Association, vol. 103(1), pages 277-304, February.
    4. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    5. David Sraer & David Thesmar, 2007. "Performance and Behavior of Family Firms: Evidence from the French Stock Market," Journal of the European Economic Association, MIT Press, vol. 5(4), pages 709-751, June.
    6. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    7. Diego A. Comin & Thomas Philippon, 2006. "The Rise in Firm-Level Volatility: Causes and Consequences," NBER Chapters,in: NBER Macroeconomics Annual 2005, Volume 20, pages 167-228 National Bureau of Economic Research, Inc.
    8. Herrera, Ana María & Minetti, Raoul, 2007. "Informed finance and technological change: Evidence from credit relationships," Journal of Financial Economics, Elsevier, vol. 83(1), pages 223-269, January.
    9. Lummer, Scott L. & McConnell, John J., 1989. "Further evidence on the bank lending process and the capital-market response to bank loan agreements," Journal of Financial Economics, Elsevier, vol. 25(1), pages 99-122, November.
    10. Andy Cosh & Douglas Cumming & Alan Hughes, 2009. "Outside Enterpreneurial Capital," Economic Journal, Royal Economic Society, vol. 119(540), pages 1494-1533, October.
    11. Luigi Guiso & Tullio Jappelli, 2005. "Awareness and Stock Market Participation," Review of Finance, European Finance Association, vol. 9(4), pages 537-567.
    12. Stulz, ReneM., 1988. "Managerial control of voting rights : Financing policies and the market for corporate control," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 25-54, January.
    13. Kaplan, Steven N. & Minton, Bernadette A., 1994. "Appointments of outsiders to Japanese boards: Determinants and implications for managers," Journal of Financial Economics, Elsevier, vol. 36(2), pages 225-258, October.
    14. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
    15. Stewart C. Myers & Raghuram G. Rajan, 1998. "The Paradox of Liquidity," The Quarterly Journal of Economics, Oxford University Press, vol. 113(3), pages 733-771.
    16. repec:hrv:faseco:30728046 is not listed on IDEAS
    17. Nicola Cetorelli & Philip E. Strahan, 2006. "Finance as a Barrier to Entry: Bank Competition and Industry Structure in Local U.S. Markets," Journal of Finance, American Finance Association, vol. 61(1), pages 437-461, February.
    18. Himmelberg, Charles P. & Hubbard, R. Glenn & Palia, Darius, 1999. "Understanding the determinants of managerial ownership and the link between ownership and performance," Journal of Financial Economics, Elsevier, vol. 53(3), pages 353-384, September.
    19. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-488, June.
    20. Newey, Whitney K., 1987. "Efficient estimation of limited dependent variable models with endogenous explanatory variables," Journal of Econometrics, Elsevier, vol. 36(3), pages 231-250, November.
    21. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
    22. Luigi Zingales, 1995. "What Determines the Value of Corporate Votes?," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 1047-1073.
    23. April Klein & Emanuel Zur, 2009. "Entrepreneurial Shareholder Activism: Hedge Funds and Other Private Investors," Journal of Finance, American Finance Association, vol. 64(1), pages 187-229, February.
    24. Jeffrey Zwiebel, 1995. "Block Investment and Partial Benefits of Corporate Control," Review of Economic Studies, Oxford University Press, vol. 62(2), pages 161-185.
    25. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation," Scholarly Articles 29407535, Harvard University Department of Economics.
    26. Fabiano Schivardi & Martin Schneider, 2008. "Strategic Experimentation and Disruptive Technological Change," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(2), pages 386-412, April.
    27. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2004. "Does Local Financial Development Matter?," The Quarterly Journal of Economics, Oxford University Press, vol. 119(3), pages 929-969.
    28. Claessens, Stijn & Djankov, Simeon, 1999. "Ownership Concentration and Corporate Performance in the Czech Republic," Journal of Comparative Economics, Elsevier, vol. 27(3), pages 498-513, September.
    29. Pavitt, Keith, 1984. "Sectoral patterns of technical change: Towards a taxonomy and a theory," Research Policy, Elsevier, vol. 13(6), pages 343-373, December.
    30. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc.
    31. Cumming, Douglas & Zambelli, Simona, 2010. "Illegal buyouts," Journal of Banking & Finance, Elsevier, vol. 34(2), pages 441-456, February.
    32. Joshua D. Angrist & Jörn-Steffen Pischke, 2009. "Mostly Harmless Econometrics: An Empiricist's Companion," Economics Books, Princeton University Press, edition 1, number 8769.
    33. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
    34. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    35. Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 518-529, October.
    36. McConnell, John J. & Servaes, Henri, 1990. "Additional evidence on equity ownership and corporate value," Journal of Financial Economics, Elsevier, vol. 27(2), pages 595-612, October.
    37. Jappelli, Tullio & Pagano, Marco & Bianco, Magda, 2005. "Courts and Banks: Effects of Judicial Enforcement on Credit Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 223-244, April.
    38. Francesco Caselli & Nicola Gennaioli, 2013. "Dynastic Management," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 971-996, January.
    39. John S. Gonas & Michael J. Highfield & Donald J. Mullineaux, 2004. "When Are Commercial Loans Secured?," The Financial Review, Eastern Finance Association, vol. 39(1), pages 79-99, February.
    40. Bhattacharya Sudipto & Chiesa Gabriella, 1995. "Proprietary Information, Financial Intermediation, and Research Incentives," Journal of Financial Intermediation, Elsevier, vol. 4(4), pages 328-357, October.
    41. Bhattacharya, Utpal & Ravikumar, B, 2001. "Capital Markets and the Evolution of Family Businesses," The Journal of Business, University of Chicago Press, vol. 74(2), pages 187-219, April.
    42. Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, April.
    43. Hall, Bronwyn H. & Khan, Beethika, 2003. "Adoption of New Technology," Department of Economics, Working Paper Series qt3wg4p528, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    44. Barberis, Nicholas & Maxim Boycko & Andrei Shleifer & Natalia Tsukanova, 1996. "How Does Privatization Work? Evidence from the Russian Shops," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 764-790, August.
    45. Cohen, Wesley M & Klepper, Steven, 1996. "Firm Size and the Nature of Innovation within Industries: The Case of Process and Product R&D," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 232-243, May.
    46. Patrick Bolton & Ernst-Ludwig von Thadden, 1998. "Blocks, Liquidity, and Corporate Control," Journal of Finance, American Finance Association, vol. 53(1), pages 1-25, February.
    47. Cumming, Douglas & Zambelli, Simona, 2013. "Private equity performance under extreme regulation," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1508-1523.
    48. Robert E. Carpenter & Bruce C. Petersen, 2002. "Capital Market Imperfections, High-Tech Investment, and New Equity Financing," Economic Journal, Royal Economic Society, vol. 112(477), pages 54-72, February.
    49. Claessens, Stijn, 1997. " Corporate Governance and Equity Prices: Evidence from the Czech and Slovak Republics," Journal of Finance, American Finance Association, vol. 52(4), pages 1641-1658, September.
    50. Raghuram G. Rajan & Luigi Zingales, 2001. "Financial Systems, Industrial Structure, and Growth," Oxford Review of Economic Policy, Oxford University Press, vol. 17(4), pages 467-482.
    51. Stijn Claessens & Simeon Djankov & Joseph P. H. Fan & Larry H. P. Lang, 2002. "Disentangling the Incentive and Entrenchment Effects of Large Shareholdings," Journal of Finance, American Finance Association, vol. 57(6), pages 2741-2771, December.
    52. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    53. Gillan, Stuart L. & Starks, Laura T., 2000. "Corporate governance proposals and shareholder activism: the role of institutional investors," Journal of Financial Economics, Elsevier, vol. 57(2), pages 275-305, August.
    54. Raoul Minetti, 2010. "Informed Finance and Technological Conservatism," Review of Finance, European Finance Association, vol. 15(3), pages 633-692.
    55. Levine, Ross, 1991. " Stock Markets, Growth, and Tax Policy," Journal of Finance, American Finance Association, vol. 46(4), pages 1445-1465, September.
    56. repec:hrv:faseco:30747162 is not listed on IDEAS
    57. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
    58. Jacob Nielsen Arendt & Anders Holm, 2006. "Probit Models with Binary Endogenous Regressors," CAM Working Papers 2006-06, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
    59. Dietmar Harhoff & Francis Narin & F. M. Scherer & Katrin Vopel, 1999. "Citation Frequency And The Value Of Patented Inventions," The Review of Economics and Statistics, MIT Press, vol. 81(3), pages 511-515, August.
    60. Xiaonian Xu & Yan Wang, 1997. "Ownership structure, corporate governance, and corporate performance : the case of Chinese stock companies," Policy Research Working Paper Series 1794, The World Bank.
    61. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    62. Geroski, P. A., 1995. "What do we know about entry?," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 421-440, December.
    63. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-592, July.
    64. R. Glenn Hubbard & William M. Gentry, 2000. "Tax Policy and Entrepreneurial Entry," American Economic Review, American Economic Association, vol. 90(2), pages 283-287, May.
    65. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
    66. James, Christopher & Wier, Peggy, 1990. "Borrowing relationships, intermediation, and the cost of issuing public securities," Journal of Financial Economics, Elsevier, vol. 28(1-2), pages 149-171.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Volker Ziemann, 2013. "Do Structural Policies Affect Macroeconomic Stability?," OECD Economics Department Working Papers 1075, OECD Publishing.
    2. Francesca Bartoli & Giovanni Ferri & Pierluigi Murro & Zeno Rotondi, 2014. "Bank support and export: evidence from small Italian firms," Small Business Economics, Springer, vol. 42(2), pages 245-264, February.
    3. repec:taf:applec:v:49:y:2017:i:43:p:4378-4393 is not listed on IDEAS
    4. Pilar Beneito & María E. Rochina-Barrachina & Amparo Sanchis, 2013. "Ownership and cyclicality of firms’ R&D investment," Working Papers 1306, Department of Applied Economics II, Universidad de Valencia.
    5. Bartoli, Francesca & Ferri, Giovanni & Murro, Pierluigi & Rotondi, Zeno, 2013. "Bank–firm relations and the role of Mutual Guarantee Institutions at the peak of the crisis," Journal of Financial Stability, Elsevier, vol. 9(1), pages 90-104.
    6. Alessandro Giovannini & Maurizio Iacopetta & Raoul Minetti, 2013. "Financial Markets, Banks, and Growth : Disentangling the links," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(5), pages 105-147.
    7. repec:eee:ecosys:v:41:y:2017:i:1:p:26-40 is not listed on IDEAS
    8. Pierluigi Murro & Valentina Peruzzi, 2017. "Family firms and access to credit. Is family ownership beneficial?," CERBE Working Papers wpC23, CERBE Center for Relationship Banking and Economics.
    9. Silvia Magri, 2014. "Does issuing equity help R&D activity? Evidence from unlisted Italian high-tech manufacturing firms," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 23(8), pages 825-854, November.
    10. Fabrizio Rossi & Richard J. Cebula, 2015. "Does the Board of Directors Affect the Extent of Corporate R&D? Evidence from Italian listed companies," Economics Bulletin, AccessEcon, vol. 35(4), pages 2567-2580.
    11. Daniela Bragoli & Flavia Cortelezzi & Giovanni Marseguerra, 2016. "R&D, capital structure and ownership concentration: evidence from Italian microdata," Industry and Innovation, Taylor & Francis Journals, vol. 23(3), pages 223-242, April.
    12. Valentina Peruzzi, 2017. "Does family ownership structure affect investment-cash flow sensitivity? Evidence from Italian SMEs," Applied Economics, Taylor & Francis Journals, vol. 49(43), pages 4378-4393, September.
    13. Silvia Magri, 2014. "Does issuing equities help R&D activity? Evidence from unlisted Italian high-tech manufacturing firms," Temi di discussione (Economic working papers) 978, Bank of Italy, Economic Research and International Relations Area.
    14. Fabrizio Rossi & Richard J. Cebula, 2015. "Ownership Structure and R&D: An Empirical Analysis of Italian listed companies," PSL Quarterly Review, Economia civile, vol. 68(275), pages 297-326.
    15. Alexandra D'Onofrio & Pierluigi Murro, 2013. "Local banking development and income distribution across Italian provinces," Working Papers CASMEF 1307, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    16. Ozgur Arslan-Ayaydin & Darold Barnum & Mehmet Baha Karan & Atilla Hakan Ozdemir, 2014. "How is Moral Hazard Related to Financing R&D and Innovations?," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 111-131.
    17. Marco Pini & Paolo Quirino, 2016. "Piccole imprese e family business: evoluzione, divari territoriali, governance e competitività," RIVISTA DI ECONOMIA E STATISTICA DEL TERRITORIO, FrancoAngeli Editore, vol. 2016(2), pages 71-100.

    More about this item

    Keywords

    Ownership; Agency Problems; Technological Change;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:itt:wpaper:wp2012-10. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michele Petrocelli). General contact details of provider: http://edirc.repec.org/data/tesgvit.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.