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Vertical Integration, Organizational Governance, and Firm Performance: Evidence from Italian Business Groups
Author(s) -
Cainelli Giulio,
Iacobucci Donato
Publication year - 2015
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.2691
Subject(s) - vertical integration , transaction cost , corporate governance , outsourcing , variable (mathematics) , profitability index , industrial organization , economics , microeconomics , normative , economies of agglomeration , horizontal and vertical , set (abstract data type) , business , variables , strategic business unit , unit (ring theory) , econometrics , marketing , computer science , management , statistics , mathematics , finance , mathematical analysis , philosophy , geometry , epistemology , programming language , mathematics education
Assuming transaction cost economics as a normative tool, we investigate the relationship between firms' ‘observed’ vertical integration choices and their economic performance. We use a two‐stage methodology: in the first, a measure of governance misalignment is computed as a difference between the governance form (i.e., ownership or outsourcing) predicted by transaction cost economics and the form actually observed; the second stage consists of estimating a performance equation where the misalignment variable is introduced together with a set of independent variables. Compared with previous studies, we introduce two novelties: we use the business group as the unit of analysis to detect the ownership of vertically related productions; we assess the moderating role of geographic agglomeration in reducing the need of vertical integration. Our results confirm the importance of technology and price uncertainty in influencing vertical integration; moreover, the misalignment variable is significant in the case of profitability, but not in the case of growth. Copyright © 2014 John Wiley & Sons, Ltd.