Business Groups and the Determinants of Corporate Ownership

Luigi Buzzacchi and Massimo G Colombo

Cambridge Journal of Economics, 1996, vol. 20, issue 1, 31-51

Abstract: This paper focuses on cross-industry differences in the pattern of corporate ownership in the Italian manufacturing and mining sectors. The authors draw attention to factors responsible for the diffusion of ownership. The paper relies on econometric estimates which confirm the role played by economies of scale, R&D intensity, and specialization of human capital in shaping corporate ownership structures. More importantly, the econometric findings point out that the internal fund allocation function extensively performed by large, diversified business groups significantly distorts the pattern of corporate ownership. Specifically, in low-tech industries where economies of scale are negligible and human capital is unspecialized, when a considerable share of output is attributable to firms controlled by groups whose core activities demand substantial wealth, the ownership share held by unrestricted residual claimants turns out to be well above the value one would otherwise expect. The opposite phenomenon occurs in high-tech, scale-intensive industries. (c) 1996 Academic Press Limited Copyright 1996 by Oxford University Press.

Date: 1996
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