The innovative performance of BG

Below are the main research papers: 

  • Giannini V., Guzzini E.(ì (2018), “To centralize or not to centralize: R&D organization in diversified firms”, XXXIX (1), L’industria, ed. Il Mulino.

 Abstract: The aim of this paper is to discuss how R&D is organized in diversified firms - i.e. multidivisional firms and business groups - according to different theoretical approaches. Special emphasis is given to the degree of centralization or decentralization in the management of R&D. We identify three issues on which there are still open and controversial questions: 1) the nature of R&D (basic versus applied); 2) the interplay between the external acquisition of knowledge and the internal organization of R&D; 3) the role played by the degree of diversification. We also discuss the peculiarities of R&D organization in business groups as opposed to other forms of decentralized firms. The paper derives the main management implications for the organization of R&D in diversified firms and discusses the questions that remain open to further research.

  •    Giannini V., Iacobucci D., “Diversification, R&D organization and innovative performance”, work in progress.

 Abstract: From a theoretical point of view, there are contrasting views on the relation between diversification and the organization of R&D. Business groups represent an ideal setting to address this research question. According to some authors (Hill, Martin, & Harris, 2000; Leiponen & Helfat, 2011), we should observe a positive relation between the degree of diversification and the decentralization of R&D. However, this conclusion is challenged by other approaches (Cassiman & Gambardella, 2009) that emphasize the benefits of a centralized R&D whose results may subsequently be applied to diversified units.  The decision to centralize or decentralized may be also influenced by the type of R&D (i.e. basic versus applied research), the type of diversification (i.e. related versus unrelated diversification) and the appropriability of R&D results (Guzzini & Iacobucci, 2014b).  There are few empirical papers examining these issues and analysing the relation between the organization of R&D and the innovative performance of firms.  We used the AIDA database containing information on manufacturing Italian companies. On the basis of ownership ties between companies, this dataset allowed us to construct a map of manufacturing business groups in 2012 and to know the position of the companies within the group.  The legal autonomy accorded to the individual companies in a group allows us to better measure the degree and type of diversification and relate it to R&D organization and the innovation performance. The dataset also provides information on the patenting activity of firms, taken from the ORBIS database. Moreover, we also refer to the “JRC-OECD database” containing patenting information on the world top corporate R&D investors. The latter database is used for a comparison with the Italian business groups, to investigate whether the organization of R&D follows common rules or depends on the context in which business groups operate. The preliminary results of this paper may be summarized as follows: a) the degree of diversification is positively related to the decentralization of R&D; b) in groups where R&D activities is conducted by controlled firms and not by heads (decentralized groups), there is a negative relation between the degree of diversification and the concentration of patents in a single controlled firm; c) regarding the innovative performance, the centralization of R&D activity may limit the patent production.

  •  Giannini V., Iacobucci D., “Internal capital market and innovative performance”, work in progress.

 Abstract: The aim of this paper is to investigate how the internal capital market in business groups influences their innovative performance. A recent literature has demonstrated that the phenomenon of business groups is relevant also in developed countries given their ability to improve the efficiency and innovative performance of affiliated firms compared to standalone ones (e.g Belenzon, Berkovitz, & Rios, 2013; Cainelli & Iacobucci, 2011; Hamelin, 2011). In all countries, business groups are responsible for the allocation of significant amount of resources in the private sector.  One of the advantages of companies belonging to groups, compared to standalone companies, is the possibility to benefit from the internal capital market: i.e. funds transferred between companies belonging to the same group. Previous researches on internal capital market showed that business groups may have a greater capacity to invest in one sector using the cash flow generated in other sectors (Boutin, Cestone, Fumagalli, Pica, & Serrano-Velarde, 2013). Affiliated firms may invest in projects, such as innovative projects, that would be difficult to finance for standalone companies due to financial constraints in raising external funds (Belenzon & Berkovitz, 2010; Boutin et al., 2013). Group heads may provide financial resources to affiliated companies in several ways. The most important for the financing of innovative projects is equity capital. Equity capital may be provided in two ways: directly, through the issue of new shares; indirectly, by restraining the distribution of dividends and allowing controlled companies to retain profits. The easier access to equity capital by affiliated company is expected to play a relevant role for the innovative performance because R&D investment are preferably financed with equity capital, given the risk attached to such investment. In fact, the literature confirms that firms belonging to business groups show a superior innovative performance compared to standalone companies (Belenzon & Berkovitz, 2010; Blanchard, Huiban, & Sevestre, 2005; Cefis, Rosenkranz, & Weitzel, 2009; Guzzini & Iacobucci, 2014b). This is explained by the advantages of groups in providing resources to affiliated companies. One of these resources is the capital needed to sustain R&D investment. The head of a group is supposed to have a better knowledge about the innovative projects of affiliated firms than external investors (such as banks, private investors or the market). As a result, the group may partially overcome the problems arising from information asymmetries which are specifically relevant for the financing of innovative projects. At the same time the head of a group may be facilitated in collecting financial resources by centralizing the flow of funds within the group and using the ‘portfolio effect’ for the acquisition of external resources (Maksimovic & Phillips, 2007).  The aim of this paper is to investigate if and to what extent the internal capital market in business groups influence the innovative performance of affiliated firms. The empirical part of the paper refers to Italian manufacturing companies. Data are taken from the AIDA and ORBIS Europe database provided by Bureau Van Dijk. Using information from the annual report of companies, it is possible to analyse the equity ‘policy’, i.e. the issue of new shares and the dividend distribution. As proxies for the innovative performance, we use R&D expenses and patents. Overall, the empirical analysis supports the hypotheses that the heads of groups play a strong role in the allocation of resources for R&D to controlled companies. This selection role is performed for different controlled firms at the same time or for the same controlled firms in different periods, by collecting resources from controlled companies and allocated them to those who need to finance R&D projects. Findings may be summarized in the following way: a) the supply of equity capital is positively related with the innovation performance; b) the distribution of dividends is negatively related with the innovation performance, c) these relations are stronger in the case of controlled companies (compared with heads), given the role played by