Business groups and the boundaries of the firm

This paper aims to show that the business group – i.e. the set of firms under common ownership and control – is the most appropriate unit to study the behavior and organization of firms and define their boundaries. Particular emphasis is given to notions such as unitary direction – i.e. the influence over strategic decisions – and administrative co-ordination which allow owners to exercise supervision and authority over the controlled companies.business group; boundary of the firm; unitary direction

The growth of business groups by habitual entrepreneurs: the role of entrepreneurial teams

Previous research demonstrates that entrepreneurial processes underpin the growth of business groups. A business group is a set of companies controlled by the same entrepreneur. Case studies of portfolio entrepreneurs suggest that one of the main reasons for business group formation is the need to create an entrepreneurial team, which is achieved by giving minority shares in the new ventures to others, mainly former employees. This enhances the portfolio entrepreneur’s ability to grow and diversify the businesses under their control. The paper identifies and discusses the different types of entrepreneurial teams developed by portfolio entrepreneurs, and their dynamics.Business groups, entrepreneurship, entrepreneurial teams

Agglomeration, related variety and vertical integration

Several recent studies investigate the relation between geographic concentration of production and vertical integration, based on the hypothesis that spatial agglomeration of firms in the same industry facilitates input procurement thereby reducing the degree of vertical integration. The present paper contributes to this debate by also considering the effects of industry variety at the local level. Specifically, we consider two forms of variety: unrelated variety and vertically related variety. The latter index is constructed using information drawn from input-output tables and captures the opportunities for outsourcing within the local system. We consider inter-industry vertical integration by taking account of the ownership of activities with input-output linkages. Using a dataset of 24,663 Italian business groups in 2001, we estimate Tobit models to investigate the influence of vertically related variety and other agglomeration forces on the degree of vertical integration of groups. Our evidence confirms that vertical integration is influenced by industry specialization at the local level. We also find that the higher the vertically related variety, the lower the need for firms to integrate activities since they have more opportunities to acquire intermediate goods and services within the local system.vertical integration, agglomeration, related-variety, business group

The Role of Agglomeration and Technology in Shaping Firm Strategy and Organization

Over the last few years a growing number of contributions have shown that the presence of business groups, i.e. sets of firms legally distinct but belonging to the same owner(s), is significant. From a theoretical point of view, this presence poses the question of whether the group or the single legal unit should be considered as the elementary unit in economic analysis: i.e., what is generally meant in microeconomic theory by ‘firm’. In this paper we consider the group as the appropriate unit to delimit the firm’s boundary, i.e. as the ‘observed’ organizational form adopted by firms when they grow in size. Starting from this hypothesis, the main aim of this paper is to analyse the role of structural variables, such as spatial agglomeration and technology, in determining some features of business groups’ strategy and organization. Specifically, the analysis concerns the presence and organizational specificity of business groups based on their membership of industrial districts (as a proxy for spatial agglomeration) and to the role of spatial agglomeration and technology in vertical integration strategies. To conduct the analysis, we take advantage of a new and large data-set at firm and business group level, recently developed by ISTAT (the Italian National Statistical Institute). The data-set, referring to 2001, covers all manufacturing firms organized as joint-stock companies.Business Groups, Agglomeration, Technology, Organisation and Strategy

Do agglomeration and technology affect vertical integration? Evidence from Italian business groups

The aim of this paper is to analyse the role of technology and spatial agglomeration in decisions about vertical integration. It starts from the hypotheses that the business group, defined as a set of firms under common ownership and control, is the appropriate unit to delimit the firm’s boundary. We use information drawn from input-output tables to detect the presence of positive inter-industry exchanges and whether or not activities in a group are vertically related. Accounting for endogeneity problems, we estimate Probit and Linear Probability models to empirically investigate the role of technology and spatial agglomeration on vertical integration decisions. Consistent with property rights theory, our results show that the technology intensity of acquirers matters for backward integration choices and moreover, that agglomeration plays a role in vertical integration only when it operates jointly with technology.Business groups, spatial agglomeration, technology, vertical integration

Entrepreneurship education in Italian universities: trend, situation and opportunities

The aim of this paper is to provide an analysis of the present situation and recent evolution in entrepreneurship courses and curricula in Italian universities. The analysis is based on a census of entrepreneurship courses and curricula run by Italian universities in 2004 and 2010. Entrepreneurship education in Italian universities is in its early development. Up to 2004 only a few universities had courses dedicated to entrepreneurship and the majority of them dealt with the development of the business plan. This situation has only slightly improved in the following years. Courses and curricula are mostly within business schools while very few exist in engineering and science schools. This situation contrasts with the need for entrepreneurship education in the Italian economy. Given the importance of traditional sectors in Italian industry we need to stimulate start-up in high-tech sectors: the development of entrepreneurship courses in engineering and in other science curricula could play an important role in this sense. At the same time we need to favor the growth process of small firms; this requires people who are able to play an entrepreneurial role in established firms.entrepreneurship education, university courses, intrapreneurship, entrepreneurial competences.

An Entrepreneurship Perspective on the Formation and Growth of Business Groups in the Small Business Sector

This thesis is a contribution to our understanding of business groups in the small busi-ness sector. Specifically, its aim is to verify to what extent the consideration of entrepre-neurial processes can advance our understanding of this phenomenon. A ‘business group’ is a set of companies which are legally distinct but belong to the same person or people. Despite the significant presence of business groups in the small business sector, most of the literature on business groups addresses large groups. This study demonstrates that the available theories of business groups – the financial and the diversification theories – are not able to explain the presence and characteristics of business groups in the small business sector. Given the little work done on the issue, the research strategy involves the use of both, quantitative and qualitative methods. Quantitative methods are used to test propositions deduced from available models of business groups; qualitative methods, based on case studies and direct interviews, are used to get new insights about the phenomenon and develop theoretical propositions. Quantitative analyses refer to the population of Italian business groups; case studies and interviews refer to a sample of business groups in the Marche region (Italy). The business group is an organizational form used by portfolio entrepreneurs to grow and diversify the businesses under their control. By using cross sectional and longitudinal analyses this study shows that in the small business sector diversification is a substitute strategy for growth in the original business. Moreover, this study demonstrates that the diversification theory is not able to explain the setting up of a business group as in most cases the degree of diversification observed in small groups is very low. The thesis demonstrates that entrepreneurial processes associated with the exploitation of new business opportunities by portfolio entrepreneurs play a crucial role in explaining the formation and characteristics of business groups. The start-up phase is critical for the success of a new business as it requires complete dedication of time and attention by the entrepreneur to continuously adjust the planned actions to the unforeseen events and un-predictable contingencies that are typical of this phase. The legal autonomy granted to the new venture helps focus resources and monitor results. In addition to this and more than anything else, legal autonomy allows entrepreneurs to modify the ownership structure of the new business and give minority shares to people involved in the start-up. The financial explanation of business groups stresses the importance of legal autonomy as a way for manipulating the ownership structure of new businesses, to raise outside equity. The thesis demonstrates that the causal relationship is the opposite of that hypothesised by the financial explanation: it is not so much the aim of raising outside equity that determines the involvement of external shareholders as the need to involve and motivate people in the start up of the new business that induces entrepreneurs to sell minority shares in it, thus enlarging the entrepreneurial team. By involving other people in the start-up of new ventures, portfolio entrepreneurs enhance their ability to enter new businesses while retaining ownership and control of the ones already established. The empirical analysis revealed the existence of three different patterns: joint venture with established entrepreneurs, employee involvement and intrapreneurship. The first is when new ventures are set up with other established entrepreneurs. The second is when the entrepreneur gives a share of the new company to an employee to secure his/her involvement in the start-up of a new venture (employee involvement). The third is when the new business is established as a result of the inspiration of an ‘intrapreneurial’ employee who takes major responsibility for the development of the business. As well as the discovery and analysis of these three forms, the thesis provides a theoretical explanation of entrepreneurial team development in business groups, based on the problems faced by portfolio entrepreneurs in allocating time and attention between the running of established businesses and the exploitation of new business opportunities. By integrating the latter explanation with other models of business groups the thesis provides a more general framework for understanding the formation and dynamics of business groups in the small business sector. The thesis also provides contributions to explain the formation and dynamics of entrepreneurial teams in a multi business context and in situations where there is a ‘dominant’ or ‘lead’ entrepreneur and one or more ‘associate’ or ‘sub’ entrepreneurs. Studying the formation and evolution of business groups poses several methodological problems, as groups are complex systems, characterised by the presence of several companies, different architectural structures and a multi-business context. The thesis provides methodological contributions on the ways to represent the current structure of business groups and on how to analyse their evolution over time

Spatial agglomeration and business groups: new evidence from Italian industrial districts

This paper is a first attempt to analyse the relationship between spatial agglomeration and firms’ organizational structures. It takes advantage of a large data set on Italian business groups that allowed us to analyse the differences in the presence and characteristics of business groups between districts and non district areas. Overall the result confirms the hypothesis that spatial agglomeration of business activities influences firms’ organization. Groups are more widespread in industrial districts than in non-district areas; moreover groups in industrial districts are less diversified and more spatially concentrated than groups outside industrial districts. Key words: business groups, industrial districts, spatial agglomeration, firm’s organizational forms JEL Classification: L22, R12

Credit rationing and firm size

This paper examines the likelihood of credit rationing faced by firms of different size. Contrary to common thought, several recent contributions on this topic argue that, when rationing credit, size alone is not a sufficient condition for discriminating between firms. We show that this result can be predicted using a framework based on the Stiglitz-Weiss model. In particular, in an environment of asymmetric information, we highlight how the likelihood of credit rationing depends upon the shape of the distribution function of project returns, especially its asymmetry and Kurtosis. Our empirical results do not support the hypothesis that small firms face more credit rationing than larger firms

What Explains Small and Medium-Sized Business Groups? Comparing the Financial and the Entrepreneurial Perspective

The paper contrasts two theoretical perspectives that account for business group formation in the small business sector: the financial perspective and the organizational/entrepreneurial perspective. Two main hypotheses are derived from these perspectives: the first hypothesis concerns capital and knowledge intensity required by the business; the second one refers to the entrepreneur�s ownership of firms in business groups. The empirical results show that the financial and the organizational perspectives are both relevant in explaining business groups in the small business sector, but the entrepreneurial perspective is more appropriate when explaining the ownership structure of firms within an entrepreneur�s business group