Patterns of corporate governance and technical efficiency in Italian manufacturing

Abstract

The purpose of this paper is to analyse the relationship between the corporate governance system and technical efficiency in Italian manufacturing. We use a non-parametric frontier technique (DEA) to derive technical efficiency measures for a sample of Italian firms taken from nine manufacturing industries. These measures are then related to the characteristics of the corporate governance system. Two of these characteristics turn out to have a positive impact on technical efficiency: the percentage of the company shares owned by the largest shareholder and the fact that a firm belongs to a pyramidal group. Interestingly, a trade-off emerges between these influences, in the sense that one is stronger in industries where the other is weaker. Copyright © 2007 John Wiley & Sons, Ltd.

The Relationship Between Bank Efficiency and Stock Returns: Evidence from Asia and Latin America

“…In other words, because profit efficiency changes take into account input and output considerations simultaneously via economic optimization mechanisms (we would argue) that they provide more information about the quality and the persistency of earnings than changes in ROE. Furthermore, Destefanis and Sena (2007) mentions that ratios such as ROE under-represent the firm's value because of the investment myopia problem, while this is not the case for efficiency scores. Destefanis and Sena (2007) also note that if managers engage in myopic behaviour, long-term investment should be expected to decrease resulting in lower efficiency.…”

“…Furthermore, Destefanis and Sena (2007) mentions that ratios such as ROE under-represent the firm's value because of the investment myopia problem, while this is not the case for efficiency scores. Destefanis and Sena (2007) also note that if managers engage in myopic behaviour, long-term investment should be expected to decrease resulting in lower efficiency. Additionally, due to the separation between management and ownership, managers may have incentives to invest in projects granting power and prestige, but not resulting in an improvement in productivity (Shleifer and Vishny, 1997).…”

“…Additionally, due to the separation between management and ownership, managers may have incentives to invest in projects granting power and prestige, but not resulting in an improvement in productivity (Shleifer and Vishny, 1997). Such behaviour is likely to be instantly reflected in a reduction in efficiency, justifying the interest of shareholders in such indicators of performance (Destefanis and Sena, 2007).…”

Corporate Governance Mechanisms and Firm Efficiency

“…There is a burgeoning literature on an alternative measure of performance in terms of TE through a nonparametric approach. Some studies have related TE with certain aspects of CG in single-country studies (and include Pi & Timme, 1993;Nanka-Bruce, 2006;Zelenyuk & Zheka, 2006;Bozec & Dia, 2007;Destefanis &Sena, 2007 andLin et al 2009). …”

“…Proponents arguing for the use of TE position their argument in managerial costs of agency; where Shleifer and Vishny (1986) suggest managers sometimes undertake projects that do not add value or productivity to the firm. TE can be applied to gauge this productivity loss where it could have gone unnoticed by financial ratios in the short-term (Destefanis & Sena, 2007). Managers can also extend the useful lives of assets to delay investment in replacements which makes the production process inefficient.…”