Delegation and R&D Spending: Evidence from Italy

Delegation of decision-making has important implications for firms’ performance. We build a simple model predicting that decentralized firms are more involved in R&D, and use data from the Italian manufacturing industry to document a positive correlation between delegation and R&D spending. This result is robust to controlling for the determinants of R&D such as human capital, capital intensity, and sectoral or regional effects. To unveil the causal effect, we investigate the determinants of delegation in our sample in a search for potential instruments. Variables found as important determinants of delegation in Acemoglu et al. (2007) in the context of French and British industries do not appear significant in our sample. Instead, we use ownership concentration as an instrument for delegation and estimate that delegation increases R&D spending by about 5% per year.