FINANCIAL STRUCTURE IN ITALIAN BUSINESS GROUPS

Many studies emphasize the use of business groups to separate ownership and control. Using different proxies, they conclude that such structures permit predatory strategies that harm minority shareholders. This study differs because it develops a new model of leverage that directly measures the degree of expropriation using financial statements and by focusing on the consolidation perimeter. This deepening methodology offers significant advantages as, within the consolidation perimeter, the chain of control is detected by accounting standards, and the sources of data are official statements that can be verified objectively. The paper constructs a mathematical leverage model that relates a group's financial structure to its revenue with respect to majority shareholders, minority shareholders and lenders. Then, the model is applied to analyze 1575 non-finance Italian groups. The results show that in Italy, at least within the consolidation perimeter, minority shareholders’ funds are on average significantly fewer and well paid; nonetheless, the greatest debt leverage allows majority shareholders to increase profits and retain earnings. The paper also explores the relationship between the holding company and the group and the likelihood that we can infer the features of the underlying group from those of the holding company, thus producing interesting results.