The Structure of Corporate Groups: the Italian Case

Large firms all over the world conduct their business through a number (tens or hundreds) of subsidiaries and associated companies, the single company that conducts its business without equity ties with other firms is nowadays the legal form adopted only by small enterprises. The corporate group is typical not only of developing countries such as Nicaragua or India, or of countries of late industrialisation such as Germany and Japan, but it is also the usual legal structure adopted in Anglo-Saxon countries such as the United States and the United Kingdom (Strachan, 1976; Chandler, 1982; Goto, 1982; Encaoua, Jacquemin, 1982; Tricker, 1984; Wymeersch, 1994; etc.) There are many reasons why firms adopt this complex structure: to minimise tax burdens, to follow the internationalisation process, to isolate the risks involved in certain activities or businesses, to take advantage of some legal regulations, and so on (Bonbright, Means, 1932; Hadden, 1984; Tricker, 1994; Zattoni, 1997; etc.). Depending on the objectives pursued, managers can create separate legal entities to govern single functions of the firm (production, sales, R&D, etc.), single businesses (insurance, manufacturing, services, etc.) or parts of businesses (products, brands, geographical areas, etc.). Previous studies show that corporate groups tend to be characterised by company structures that differ according to the country of incorporation of the parent companies. This means that groups with parent companies located in the same country tend to have homogeneous characteristics (organisational isomorphism) and that groups located in different countries have different features. In other words, the legal, social and cultural institutions of the host country seem to have a great influence on company structure. That being said, the main aim of this article is to describe the characteristics of large firms in Italy and to analyse the reasons that lead to the adoption of a complex company structure. With this aim in mind, the first part of this article will describe the characteristics of large Italian firms in terms of structure of control and ratio of shares owned by the main shareholder, comparing them with other countries; the second part of the article will analyse the typical company structure adopted by large Italian firms, explaining the reasons that justify such widespread use of pyramidal (or hierarchical) holding companies in this country. Finally, the consequences that this structure has had on the performance of groups and on the Italian economic system will be discussed, with some insights on future trends