Grapes grow better in the backyard: The effect of organic growth strategies on Italian wineries’ profits

Abstract

Purpose

This paper aims to study the effects of innovation on the profitability of large wineries. In particular, organic growth is evaluated versus external growth.

Design/methodology/approach

Data from balance sheets over more than a decade are used. The analysis is limited to large Italian wineries to include firms that constantly invest in R&D in the sample. The analysis focuses on 25 Italian wineries observed over eight years. Panel data estimation is used to analyse these data.

Findings

The paper shows that investments in R&D increase the profitability of innovative wineries in the long run but decrease it in the short run. Moreover, because of financial constraints, some wineries may invest too few resources in R&D.

Research limitations/implications

The main limitation is that the focus is restricted to large wine producers, while many small producers that do not generally invest in R&D exist in the market. The practical implication is that governments should support R&D investments of wineries.

Originality/value

The main contributions are to show empirically the effects of investing in R&D on the profitability of large wineries and to highlight the possible presence of severe financial constraints, which require policy interventions.

Citation

La Porta, V. and Migheli, M. (2019), "Grapes grow better in the backyard: The effect of organic growth strategies on Italian wineries’ profits", International Journal of Wine Business Research, Vol. 31 No. 2, pp. 243-259. https://doi.org/10.1108/IJWBR-11-2017-0069