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Does a one-tier board affect firms’ performances? Evidences from Italian unlisted enterprises

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Abstract

Even though the financial literature has examined the relation between the composition of the board of directors and firms’ performances, few studies have investigated the effect of adopting a specific corporate governance system. Past studies have not found clear evidence of the superiority of a specific corporate governance system in terms of economic and financial performances; instead, they have generally been limited to legal systems where the adoption of a specific system is mandatory. In this paper, we take into consideration the case of the Italian Corporate Law Reform, which gives firms the opportunity to choose, in a non-mandatory way, between different governance systems and in particular between a one-tier model and the pre-existing system prior to the Reform. Using propensity score matching and focusing on a sample of unlisted Italian joint-stock companies, we found evidence of a significant worsening of performances from 2003 to 2013 for corporations adopting a one-tier board after the Reform.

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Notes

  1. More precisely, 119 joint-stock companies adopted a two-tier board governance system within a year of the introduction of the Reform, but their number decreased to 113 in 2013 (Bellavite Pellegrini 2014).

  2. The choice of this interval rests on the Reform that allows the traditional system to be abandoned and an alternative one to be adopted beginning 1 January 2004. Therefore, 2003 was the last year with a similar corporate governance system in Italy and it is the most recent baseline for a comparison, ceteris paribus, of the increase or decrease in performance indices for the sampled firms.

  3. According to Bellavite Pellegrini (2014), we have that only few firms adopted a one-tier board system. In particular, the maximum number of companies that adopted the one-tier system has been observed in 2007 (198 firms). That number decreased to 168 at 31 December 2013. In our analysis, the 107 companies chosen (see Table 1) are a sub-sample of those firms that adopted a one-tier board system in 2004–2007 and that maintained the implemented system during 2008–2013.

  4. The variables used for the specification of propensity score are measured in 2003 when all the sampled companies implemented a traditional system, in order to avoid reverse causality, i.e. that the choice of a corporate governance system endogenously affects the components of vector X.

  5. Difference-in-difference estimator is particularly efficient in protecting estimates from time-invariant sources of hidden bias or in protecting estimates from economic shocks that affect both treated and controls in a similar way. This result allows us for protecting estimates in the presence of the Great Recession started from 2008.

  6. The algorithm excludes all the observations among controls that are far more than 0.01 from the treated in terms of estimated propensity score.

  7. Technically, the universe is composed of joint-stock companies and single shareholder joint-stock companies.

  8. We distinguish unlisted joint-stock companies with only one shareholder from those that have more than one, in order to take into account for the ownership structure of each sampled firm.

  9. We use the economic sector classification according to the ATECO 2007, even if the propensity score algorithm considers main sectors as not significant in predicting the choice of a one-tier board system. In addition, the scarce frequency of some categories and the large number of them in comparison with the treated units does not allow for us using all the information. Hence, the use of some sectors in the propensity score specification has to be considered as a robustness check.

  10. We use the following five areas: North-East, North-West, Centre, South and Islands, according to the official classification of the National Institute of Statistics.

  11. Indeed, revenues from sales are the only indicator that is not expressed in the form of ratio.

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Authors and Affiliations

  1. Department of Economic and Business Management Sciences, Catholic University, Via Necchi 5, 20123, Milan, Italy

    Carlo Bellavite Pellegrini

  2. Department of Statistical Sciences, Catholic University, Largo Gemelli 1, 20123, Milan, Italy

    Emiliano Sironi

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  1. Carlo Bellavite Pellegrini
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  2. Emiliano Sironi
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Correspondence to Emiliano Sironi.

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Bellavite Pellegrini, C., Sironi, E. Does a one-tier board affect firms’ performances? Evidences from Italian unlisted enterprises. Small Bus Econ 48, 213–224 (2017). https://doi.org/10.1007/s11187-016-9768-z

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