Stefano Paleari

The Provision of Finance to Innovation: A Survey Conducted among Italian Technology-Based Small Firms

Financial constraints to the development of innovation are often considered one of the main impediments to high-technology firms seeking to expand and grow. In particular this is the case of small and medium size high-tech firms. In the U.S. and the U.K. a variety of sources of finance are available to the start-ups of innovative firms; in the other European countries, and particularly in Italy, these means are still uncommon so that the development of technology is often prevented. This paper, based on an empirical analysis on a survey of 46 small high-tech Italian firms, aims at exploring the problems experienced by small businesses in gaining access to debt and equity finance. The results highlight that traditional financial sources are inadequate to finance innovative projects. The questioned firms rely mainly on personal finance, and secondly on short term bank debt; they are truly involved in maintaining control over the firm activities and are willing to issue outside equity only if the new investors also provide non financial competencies. Among the 46 interviewed firms, only 10 are willing to be listed in the future on small firms stock markets.

IPO underpricing in Italy

This article analyses the first-day return of 182 IPOs listed on the Italian Stock Exchange from 1985 to 2001. It finds a significantly mean positive underpricing (21.87%). Contrary to the evidence detected in the USA by Loughran and Ritter and Ljungqvist and Wilhelm, it highlights that on the main board of the Italian Exchange IPO underpricing decreased in the late 1990s. It claims that such a pattern can be accounted for by two determinants: (i) the evolution of pricing strategies, from fixed-price IPOs to bookbuilding, (ii) the segmentation of the Italian Exchange with the birth of a new board for high-growth and technology firms (Nuovo Mercato). It shows that IPOs are intentionally underpriced: both public and private information available at the IPO is only partially incorporated in pricing the shares. The results suggest that negative feedback learned during the preselling is more fully incorporated into the offer price than positive information. Finally, it shows that price revisions are partially predictable on the basis of public information at the time of the offering.

Should Firms Going Public Enjoy Tax Benefits? An Analysis of the Italian Experience in the 1990s

In Italy tax benefits are granted to firms going public. However, does such tax relief really reduce the corporate tax burden? In this study we tackle the issue by considering 21 industrial firms that were listed on the Italian Exchange from 1995 to 1997 and enjoyed a temporary tax rate cut-off. We find that the increase in the taxable income reported by these firms largely counterbalances the effect of the tax relief. We conclude that a tax rate cut-off may not necessarily provoke a reduction in the tax burden for newly listed firms, since in the short term they report larger earnings compared with privately-owned companies. We claim that this induced effect is mainly due to: the significant improvement of operating performance in the year of the listing; the reduction of the debt tax shield; an increase in investment and more accounting transparency. Our findings suggest that tax relief for IPO firms does not necessarily mean a loss of revenue for the government. Copyright Blackwell Publishing Ltd, 2003.

Income Shifting in Italian Business Groups and some Governance Implications

This paper explores the relationship among group control, financial reporting strategies and governance implications in the pursuit of domestic tax planning. A very large number of papers deals with international tax planning in multidivisional enterprises, but very few are devoted to exploring significant incentives for national business groups to engage in tax planning strategies. In this paper we propose a one-period model relating to the tax incentives of income shifting in Italian business groups. We show that, given the total amount of expected earnings before taxes and the dividends received by the firms belonging to a business group, an optimal solution to the problem of minimizing the group tax burden exists. The optimal solution involves a gain in value for the group as a whole; nevertheless, since in business groups ownership is often differentiated among shareholders (often because of the separation between ownership and control), income shifting may determine wealth transfers, often in favor of the controlling shareholder. We therefore analyze the management and governance implications of such income shifting, for both shareholders and stakeholders (i.e. managers).

How much equity capital did the Tokyo Stock Exchange really raise

Even though the channelling of equity capital from savers to listed firms is one of the primary functions of a stock market, not much effort has been devoted to the problem of measuring the phenomenon. External equity financing, traditionally associated with the issue of new shares, depends also on the sale of already issued shares. This additional form of collection of equity capital becomes relevant when the firms of the market are connected by cross-shareholdings (as in Japan): the phenomenon of equity carve-out is a relevant example of equity financing obtained through the sale of existing shares. The paper presents a model for computing the equity capital raised by companies listed in a given stock exchange over a specified period of time, which is non trivial when firms are connected by cross-shareholdings. A numerical computation of the net amount of equity financing in the Tokyo Stock Exchange in the period 1971–1992 is reported: it shows that the net (or true) measure is significantly different and, in most cases, lower than the conventional one.

Corporate Groups and Minority Shareholder Wealth: A Role for Private Benefits?

This paper aims at developing a theoretical framework to address the issue of internal resource allocation within corporate groups, representing an extension of the internal capital market approach developed for Anglo-Saxon type multidivisional enterprises. In particular, the paper investigates how private benefits from control affect investment decision processes in a capital constrained business group. We consider a group of n listed companies controlled by one main shareholder (i.e., a hierarchical group), and suppose that the group as a whole is endowed with an exogenous and limited amount of capital for investment. We analyze the effects of private benefits on the investment allocative efficiency and on the wealth of the group;s various claimants. Under reasonable assumptions, we show that the controlling shareholder always finds preferable to secure private benefits. Moreover, and surprisingly enough, we find that the appropriation of control benefits may give rise to an increase in the market value of the group as well as in the portfolio wealth of the set of minority shareholders. In particular, the positive effect of control benefits on minority interests increases with the capital rationing of the group. Therefore, the effects of private benefits can be different in different markets, depending on the degree of development and the credit capacity of the single market. The findings of this paper challenge the largely accepted view that private benefits from control are always harmful to minority shareholders.

L’accordo open skies EU-U.S.: una prima valutazione degli effetti per l’Italia

The aim of the paper is to evaluate the effects of the EU-U.S. open skies agreement on the Italy U.S. air transportation market. The EU-U.S. open skies agreement, which came into force in March 2008, is an important example of the liberalization of the air transport industry the goal of which is to improve consumer welfare. Enabling any European carrier and any U.S. airline to fly between EU and U.S. destinations without restrictions on frequencies and fares is the first step in creating an EU-U.S. open aviation area. This agreement harmonizes the fragmented and diversified regulation on transatlantic market access in EU countries. The study focuses on passenger traffic in terms of both direct flights and one-stop flights from Italy to the U.S. to analyze the changes in competition and service quality induced by the EU-U.S. open skies agreement. A pre- and post deregulation comparison of the transatlantic market highlights that the number of flights and destinations decreased, while the service coverage in Italy improved. Moreover, although the number of carriers offering transatlantic services decreased, fewer routes are monopolized by only one carrier.

Ipercrescita nelle PMI in Europa

Economic literature have clearly shown that the growth, wealth and economic develpment of a country are closely related to firm growth. In particular, it is possible to identify in each country a limited number of firms exhibiting a growth which seems significantly faster than the others; the term used to refer to this phenomenon is hypergrowth. Despite its high economic potential, research on entrepreneurship and on the organizational structures did not previously investigate hypergrowth in a systematical fashion, particularly with regard to what determine it; the few existing studies have mainly focused on American companies. Moreover the phenomena of hypergrowth underlie recognized criticality of organizational nature, resources’ motivation and financial management. This work, based on a sample of 307 companies selected from over 200.000 European companies between 1998 and 2006, intends to draw the attention of organization scholars to the phenomenon of hypergrowth by identifying the characteristics of the firms having shown an extraordinary development in the European area. In particular, following their recognized importance in many European countries, this research focuses on small-medium-sized enterprises (SMEs), clarifying the differences between the hypergrowth firms and the firms exhibiting a different path of growth (control sample). The hypergrowth firms are younger, use external growth, have access to financial markets, are more in debt and invest more heavily. The identification of these firms’ features can provide a useful guidance to address policies aiming at fostering entrepreneurship, as well as to understand hypergrowth consequences on the organization and management. Thus this work aims at opening a line of research for scholars of organization and of entrepreneurial phenomena.

La "struttura finanziaria ottima" indotta dalla dual income tax

Recently, most European governments have attempted to reform corporate tax rules in order to favour equity financing over debt. In Italy, in particular, since 1998, the corporate tax system has deeply changed, thank to the introduction of the so-called Visco reform. The reform innovations are an interesting experiment of a corporate taxation oriented to equity financing. The main objective of the legislator introducing the two-rate system called Dual Income Tax System (DIT) is to encourage the capitalisation of firms. The aim of this paper is to analyse the optimal capital structure which maximizes the net income of firms under different tax systems. Our model shows that two-rate systems are more neutral than one-rate systems such as the tax system existing before the Viscos reform and that prospected by Tremonti, the latter Minister of Finance.