Business groups


The research interest on business groups (BG) derives from the idea that business groups may represent an efficient mechanism of resource allocation, which allow affiliated firms to foster their economic and innovative performance.

Business groups are defined as sets of companies that are legally distinct, but which are owned and controlled by the same person(s). This may be an individual, members of one family or a coalition of people, who are referred to as the “ultimate owner”, “vertex” or “controlling owner” of the group.

Business groups may be divided between horizontal groups and vertical groups or pyramids. Horizontal groups mimic the multidivisional structure, in which controlled companies play the role of divisions.  In vertical business groups (pyramids) there could be several layers of controlled companies.

The business group is the organizational form normally adopted by European firms to manage diversified activities.

The phenomenon of business groups is widespread both in emerging and in developed markets. The literature emphasizes that this organization is widespread across all size classes and all countries (Bae et al., 2008; 2002; Fan et al., 2005; Ferris et al., 2003; Gopalan et al., 2007; Khanna & Yafeh, 2007). Nowadays, firms are realizing the importance of networking and clustering to develop and share knowledge and innovation. This is especially true when there are changes or market shocks. Collaboration and networking are fundamental to survive and grow. Belonging to a group may allow affiliated firms to enhance their performance compared to corresponding standalone firms.

The literature on business groups is wide and not always aligned with its results. Different findings may also depend on the different contexts in which business groups are observed.

Italy is an interesting case of analysis given the importance of small and medium-sized business groups. Italian groups show a dichotomous structure: there are few groups of large size with a significant economic weight and many small and medium-sized groups. During the last decade, the number of business groups is increased and also their relevance within the Italian economy (ISTAT, 2015). 

In the past, business groups were generally associated with market inefficiencies. Indeed, their development stemmed from the need to replace inefficient institutions or they represented a way for majority shareholders to appropriate resources from minority shareholders. This means that the group assumed a negative meaning in the presence of expropriation of resources and a substitute role in case of market inefficiencies (Morck & Yeung, 2003). The common view was that groups should not be developed in the presence of stable and efficient markets. During the last decade, the consideration about the role of business groups shifted towards a positive view in which they are considered an efficient mechanics in fostering and stimulating the economic and innovative performance of affiliated firms (Belenzon & Berkovitz, 2010; Hamelin, 2011). Indeed, the growth of groups is not just driven by a situation of inefficiency, but it is seen as an opportunity for firms to develop and foster innovative activities. In fact, the economic and innovative performance of business groups are favored by the superior capacity of affiliated firms to benefit from the internal capital market. In this sense, the internal capital market does not represent a way to expropriate resources to controlled firms from the majority shareholders, but on the contrary, it fosters the development of all affiliated firms. In the last years, both the R&D expenses and the innovative performance have assumed a fundamental role for the growth and the survival of firms. R&D expenses and the innovative performance (such as patent activity) are risky investments and they need large financing. For this reason, business groups are advantaged in sustaining this type of investments by benefiting from both the internal capital market and an easier access to the external capital market (such as bank financing).  Although the attention of researchers on resource allocation mechanisms and on the innovative performance in business groups is increasing, the literature is still underdeveloped.

Specifically, our research activities on this organizational form is focused on two main topics: