Ownership structure, governance, and innovation

This paper tests the impact of firms׳ ownership structure on innovation in a context featuring pronounced ownership concentration and conflicts between large and minority shareholders. Using data for 20,000 Italian manufacturers, and accounting for the possible endogeneity of ownership levels, we find that ownership concentration negatively affects innovation, especially by reducing R&D effort. Conflicts between large and minority shareholders appear to be a determinant of this effect. Moreover, risk aversion induced by lack of diversification exacerbates large shareholders׳ reluctance to innovate. Family owners support innovation more than financial institutions, but the benefits of financial institutions increase with their equity stakes.