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Corporate Governance Effects on Innovation When Both Agency Costs and Asset Specificity Matter

Industrial and Corporate Change, Forthcoming

27 Pages Posted: 25 Jan 2016  

Filippo Belloc

University of Chieti-Pescara - Department of Economic Studies

Eleonora Laurenza

Bank of Italy

Maria Alessandra Rossi

University of Siena

Date Written: January 24, 2014

Abstract

The paper explores the question whether the relationship between corporate governance and innovation is affected by the extent to which the firm is exposed to agency problems and asset specificity issues. In particular, we argue that different combinations of asset specificity and agency costs are associated to firm age and sector of activity and predict heterogenous effects of ownership concentration on innovation across different types of firms. We use a unique dataset on about 35.000 Italian manufacturing corporations over the 2002-2007 period and run a hurdle model, distinguishing four sub-groups of firms on the basis of their age (greater or lower than 15 years) and of whether they belong to a high technology or low technology sector. We find that the effects of ownership concentration on innovation are coherent with the predictions of so-called "shareholder theory" when agency cost effects dominate over asset specificity effects and that they are coherent with the predictions of so-called "stakeholder theory" when asset specificity effects dominate over agency cost effects. 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, especially as regards the role played by ownership concentration, and may help policy-makers to define more effective type-specific initiatives to stimulate firm innovation.

Keywords: corporate governance, innovation, Italian manufacturing sectors, hurdle models

JEL Classification: C30, G30, L60, O30

Suggested Citation

Belloc, Filippo and Laurenza, Eleonora and Rossi, Maria Alessandra, Corporate Governance Effects on Innovation When Both Agency Costs and Asset Specificity Matter (January 24, 2014). Industrial and Corporate Change, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2721375

Filippo Belloc (Contact Author)

University of Chieti-Pescara - Department of Economic Studies ( email )

Viale Pindaro 42
Pescara, Pescara 65127 - I
Italy

Eleonora Laurenza

Bank of Italy

Via Nazionale 91
Rome, 00184
Italy

Maria Alessandra Rossi

University of Siena ( email )

Piazza S. Francesco, 7
Siena, I-53100
Italy

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