Family Firms and Input Procurement: Firm-Level Evidence from Italy

Abstract

This paper empirically analyses input procurement using Italian firm-level data. Combining the international economics literature on global sourcing with the family business and international business literature on family firms (FFs)’ internationalization, we build a comprehensive framework in which sourcing is shaped by location (domestic versus foreign sourcing) and ownership (integration versus outsourcing) decisions. Relying on a new firm-level, cross-sectional dataset on a large and stratified sample of Italian manufacturing firms, we address the relationship between global sourcing and firm-level features, such as family presence in ownership and control, productivity, and input specificity. Our probit and multinomial probit estimates suggest that the FF status is negatively related to foreign sourcing, and it plays little role in orienting firms’ ownership decisions; moreover, firms’ productivity fosters foreign sourcing, and reliance on specific inputs favors integration. Our study contributes to the International Economics literature on global sourcing by studying factors other than productivity and input specificity that affect input procurement; moreover, it contributes to the Family Business and International Business literature on FFs’ internationalization by taking a supply-side perspective and investigating sourcing through the interplay between location and ownership choices.

Keywords: productivity, input specificity, family firms, input procurement, sourcing

JEL Classification: F23, D23, C35, L24