Séminaire KTO-GREDEG-OFCE - Mattia Guerini (Université Côte d'Azur)

Governance structure, technical change and industry competition
Quand ? Le 29-01-2020,
de 14:00 à 15:30
Où ? SKEMA Business School - Room 278
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with Philipp HARTING (University of Bielefeld) and Mauro NAPOLETANO (OFCE)

Title: “Governance structure, technical change and industry competition”

Abstract: We build a model of industry dynamics to study how the governance structure of publicly traded firms impacts upon aggregate industrial characteristics such as competition and productivity growth. The governance structure encompasses the distribution of shares among short- and long-term institutional investors, the autonomy of the management as well as the management remuneration scheme. A bargaining process involving these three stakeholders, which are motivated by possibly contrasting incentives, determines the optimal allocation of financial resources between real investments in R&D activities and financial investments in shares buybacks. Firms escape the dynamic competition with the competitors by investing in R&D and inflate their stock prices by buying back outstanding shares traded at a stylized financial market. The model is also calibrated on EU industry data.
We find that industry competition and technical progress depend on the specification of the governance structure. In particular, while the technical progress is always positively associated with the presence of long-term investors in our model, the link between market concentration and ownership structure is multifaceted and can either be negative or inverted-U shaped depending upon (i) the degree of management autonomy and (ii) the phase of the industry life-cycle. In this respect, the results also suggest that when firms are characterized with more long-term (short-term) oriented governance structure, the market selection process is faster (slower) and the competition is characterized by leapfrogging (pre-emption) dynamics. Finally, we use the model to interpret the empirically documented inverted-U shaped relation between competition and innovation (see Aghion et al., 2005). We explain this stylized fact as an emergent phenomenon, explained by pooling together industries characterized by heterogeneous governance structures and belonging to different phases of the industry lifecycle.

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