The Growth of Family Firms: An Innovative Model Based on Public-Private Partnership

25 Pages Posted: 21 Oct 2012 Last revised: 22 Oct 2012

See all articles by Laura d'Alessandro

Laura d'Alessandro

affiliation not provided to SSRN

Marco Giorgino

Polytechnic University of Milan

Barbara Monda

RiskGovernance - Politecnico di Milano, Management, Economics and Industrial Engineering Department

Martina Santandrea

affiliation not provided to SSRN

Date Written: January 31, 2012

Abstract

The crucial role of Family Firms in supporting the economic development of a territory has stimulated the flourish of a variety of Public Policies, such as tax benefits, special funds, guarantees and expertise development. Nevertheless, in a global economy, given the growing importance of factors such as integration, internationalization and innovation, it is necessary to redesign the public intervention.

This study proposes a new model of intervention suitable for financing the growth of Family Firms and investigates its expected effects. The model is based on a Public-Private Partnership (PPP) capable to enable an enterprise network of Family Firms supported by a special financial vehicle.

Given the positive correlation between Family Firms development and territorial development, the Public Sector can benefit from this new policy to achieve socio-economical goals. This study shows that, as promoter of the initiative, the role of the Public Sector should be to enhance the creation of favorable conditions for the development of the enterprise network, acting as facilitator and integrator of the system. Moreover, it should be responsible for the creation and monitoring of the activities of the financial vehicle in which co-exist private resources brought by Pension Funds and Mezzanine Funds. At the same time, the study supplies the Public Sector with an integrated scorecard in order to measure both socio-economical and financial performances.

A systematic classification of existing Public Policies shows that this model would maximize the benefits of all actors involved.

The dynamism of firms financed by risk capital and the worsening of credit conditions, highlight the need of financing the enterprise network through equity. Nevertheless, Family Firms are resistant to lose control. Considering that the purpose of this study is the growth of Family Firms, this model requires the financing of the firms’ network not only through equity but also through a hybrid instrument, the Mezzanine finance. This type of instrument, in contrast with the traditional debt capital, is suitable for financing the expansion projects of Family Firms thanks to its flexibility and long-term orientation. The intervention of private investors in the partnership program is carried out not only through a contribution of financial resources, but also with the provision of expertise which absence could, indeed, undermine the survival of firms.

This innovative form of intervention could be significantly implemented in an area characterized by the intensive presence of Family Firms. The Italian territory represents a potential area of applicability of this new policy because its economic system mostly relies on Small and Family Firms.

Keywords: Family Firms, Growth, Enterprise Network, Public-Private Partnership, Financial Vehicle, Mezzanine Finance

JEL Classification: G32, G38, H54

Suggested Citation

d'Alessandro, Laura and Giorgino, Marco and Monda, Barbara and Santandrea, Martina, The Growth of Family Firms: An Innovative Model Based on Public-Private Partnership (January 31, 2012). Available at SSRN: https://ssrn.com/abstract=2164704 or http://dx.doi.org/10.2139/ssrn.2164704

Laura D'Alessandro

affiliation not provided to SSRN ( email )

Marco Giorgino

Polytechnic University of Milan ( email )

vial Lambruschini 4B
Milan, Milan 20156
Italy

Barbara Monda (Contact Author)

RiskGovernance - Politecnico di Milano, Management, Economics and Industrial Engineering Department ( email )

Piazza Leonardo da Vinci, 32
Milano, 20133
Italy

HOME PAGE: http://www.risk-governance.eu

Martina Santandrea

affiliation not provided to SSRN ( email )

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