Effect of Governance Reforms on Corporate Ownership in Italy: Is it Still Pizza, Spaghetti and Mandolino?

This paper describes the logics that guide the implementation of corporate governance reforms and investigates the extent to which these logics lead to an increase in investor protection. We use the example of Italy, where major governance reforms were passed in 1998 to protect minority shareholders from the risk of expropriation. Our two-stage mixed-methods longitudinal study (1995-2005) reveals that the reforms were only modestly effective in improving governance practices. On the one hand, we document a greater alignment of cash flow rights and voting rights of ultimate owners after 1998, suggesting that minority shareholders face lower risk of expropriation. Yet, on the other hand, we find that the percentage of firms where control is fully contestable continues to remain low. Our qualitative analysis reveals both facilitators such as institutional investor activism and mandatory provisions, and impediments such as discretionary provisions, weak enforcement and an ingrained culture of high control. This study elaborates extant theory on effectiveness of reforms by adopting a longitudinal design that describes both their underlying logics and their actual effects on business practices. It also offers conceptual clarity to this literature by bringing attention to factors that act as facilitators and impediments to reform efforts. This study prompts lawmakers in countries endeavoring reforms to encourage participation of institutional investors, as also urges them to consider mandatory provisions, especially those which enhance disclosure and representation.