Ownership Structure, Governance, and Innovation: Evidence from Italy

Government of the Italian Republic (Italy), Ministry of Economy and Finance, Department of the Treasury Working Paper No. 10

44 Pages Posted: 15 Dec 2012

See all articles by Raoul Minetti

Raoul Minetti

Michigan State University - Department of Economics

Pierluigi Murro

Luiss Guido Carli University - Department of Business and Management

Monica Paiella

CSEF - University of Naples Federico II

Date Written: October 31, 2012

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.

Keywords: Ownership, Agency Problems, Technological Change

JEL Classification: G32, O3

Suggested Citation

Minetti, Raoul and Murro, Pierluigi and Paiella, Monica, Ownership Structure, Governance, and Innovation: Evidence from Italy (October 31, 2012). Government of the Italian Republic (Italy), Ministry of Economy and Finance, Department of the Treasury Working Paper No. 10, Available at SSRN: https://ssrn.com/abstract=2186033

Raoul Minetti (Contact Author)

Michigan State University - Department of Economics ( email )

101 Marshall Hall
East Lansing, MI 48824
United States
517-355-7349 (Phone)
517-432-1068 (Fax)

Pierluigi Murro

Luiss Guido Carli University - Department of Business and Management ( email )

Via Salvini, 3
Rome, 00198
Italy

Monica Paiella

CSEF - University of Naples Federico II ( email )

Via Amm. F. Acton, 38
80133 Naples, Caserta 80133
Italy

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