Banks’ centrality in corporate interlock networks: evidences in Italy

The idea that the governance mechanisms affect firms’ performance is well acknowledged in management literature. The settings prevailing in governance studies explain board’s roles at the light of the agency theory framework. However, a complementary perspective is focused on the acquisition of critical resources closely related to activation of external relations with the most influential actors of firm’s environment. One such kind of external relationship is called interlocking directorates and occur when an individual simultaneously sits on the board of two companies. Moreover, since banks control financial capital, that is a resource that has a universal value for all firms, they are more likely to be very important actors inside corporate networks. By analyzing interlocking directorates among listed banks and non financial firms in Italy, using the methods and theory of social network analysis (SNA), I find that banks are the most influential actors in the network and that centrality in the network enhances financial performance.Corporate Governance, Board of Directors, Performance, Social network analysis

Banking regulation towards advisory: the “culture compliance” of banks and supervisory authorities

The financial regulation is moreover based on self-regulation and the coordination of external and internal supervision. This determines an evolution in the role played by the supervisory authorities, and in the manner in which they interact - with and almost advisory function - with the governance bodies of the banks, such as the board of directors, top management and external and internal auditors. The capacity to adequately perform such advisory functions entails the existence of consistent objectives, consistent knowledge and consistent cultural models. Our paper points at cultural gaps as a possible stumbling block in the efficient exchange of information and the sharing of problems and goals among regulators and the industry. We develop a cultural survey based on the application of a text-analysis model to a corpus of reference texts produced by two samples, drawn from among the supervisory bodies and the supervised entities. The empirical survey results reveal numerous fields of cultural differentiation, alongside several important areas in which the orientations of the two parties tend to overlap.Financial Regulation; Banking Culture; Cultural Compliance

M&A and post merger integration in banking industry: the missing link of corporate culture

The intense concentration process taking place in the financial systems of the major countries has attracted substantial attention from stakeholders and academics. The impact of M&A on value creation and efficiency / effectiveness improvements of banks involved appears, on the whole, disappointing and still hard to create benefits for customers. The reason seems to lie in the difficulty of governing a post-merger integration process, which generally requires good governance and management practices, significant experience and attention to cultural profiles and individuals’ behavior. More in detail, management literature recognizes the importance of corporate culture, considered as the set of values and decisions that drive individuals’ behaviors within organizations, for explaining alliance success in M&A operations. In fact cultural clashes could determine conflicts and negative effects, on one hand, on the timing and the effectiveness of the post-merger integration process and, on the other hand, on motivation and turnover of individuals. Set in Italian banking industry, this paper proposes a framework, applied to a representative sample of cases (about 78,2% of market share, based on total assets), for assessing cultural similarity of actors involved in M&A operations. Corporate culture is measured using an ethnographic approach focusing on language as its special artifact. The assessment is based on the definition of some key concepts that are relevant for the banking industry (e.g., competencies, competition, customer, disclosure, human resources, innovation, risk) and on a text-analysis model applied to a corpus of reference texts produced by the surveyed banks three years before M&A. The elaboration of data uses Wordsmith 4, a text analysis software developed by Oxford University. The paper is organized as follows: at first, we analyze and explain how low levels of cultural compatibility before M&A could limit the success of post-merger integration processes of banks. After, we propose and describe the measurement procedure of the cultural fit among bidder and target banks, based on text analysis. Lastly, we conclude with the discussion of the results obtained for each couple of banks involved in M&A and with suggestions for future applications of our framework.Banks; Merger & Acquisitions; Post-merger Integration; Corporate Culture

Evaluating the board of directors of financial intermediaries: competencies, effectiveness and performance

This paper proposes a model for analysing the effectiveness of boards of directors of financial intermediaries. The European Union recommends that companies in the Member States annually evaluate the performance of their boards. The degree of effectiveness of a board should be appreciated taking into account the business structure, ownership and institutional model of the firm, on the one hand, and the characteristics of its board, in terms of its composition, structure and skills, on the other hand. This paper also outlines the specificity of the role played by boards of directors in financial intermediaries, also in the light of the industry standards and regulations, and provides an overview of the board assessment methodologies proposed in literature, or developed by listed companies on the Anglo-saxon markets, with a view to considering their applicability to the financial sector. Lastly, and based on the foregoing, the paper proposes a model for diagnosing the conditions that need to be put into place to ensure the suitability of boards of directors and to evaluate the performance of both the board as a whole and the individual directors.Corporate Governance; Board of Directors; Performance

Coordination & cooperation in financial regulation: Do regulators comply with banking culture?

This paper identifies cultural gaps as a possible stumbling block in the efficient exchange of information and the sharing of problems and goals among regulators and the industry, with respect to the recent innovations introduced in the financial sector, which are orienting the supervisory authorities towards the adoption of new interaction models with the supervised financial intermediares.

Network embeddedness, specialization choices and performance in investment banking industry

The idea that network structure and embeddedness affect firms’ competitive behavior and performance is not new both in network literature and in strategic management literature. This study recognizes that the possibility to fully exploit network opportunities is depending on firm specialization choices. By analyzing network embeddedness within the European investment banking industry, I find that banks enhance performance by having a central position in their network and that specialization reduces bank’s benefits of having a central position in the network.Investment Banking; IPOs; Underwriting syndicates, Social network analysis

Corporate disclosure determinants: a cross-country investigation

The wave of bankruptcies that have followed one upon the other in recent years as the consequence of financial scandals and the integration among the financial systems of various countries have given rise to a search for mechanisms suitable for protecting investors and regulating growing capital flows. More and more frequently, scholars are looking upon the disclosure as a very important tool within the context of the said mechanisms. The factors affecting the actual disclosure levels are analyzed through an empirical verification based on data relative to a sample of 45 countries. The initial evidence suggests that disclosure is affected both by the efficiency in the application of the judicial procedures and by factors directly connected with the national culture.Corporate Disclosure; Judicial Enforcement; National Culture

Politicians “on board”! Do political connections affect banking activities in Italy?

This paper analyzes the effects of political presence in the boards of directors of cooperative banks. We refer our analysis to all politicians (almost 160.000) belonging to a political body in Italy. Overall, our dataset contains 1.858 board members referring to 127 cooperative banks. Results show that politically connected banks, in which politicians have executive roles in the board of directors, display higher net interest revenues, lower quality of the loans portfolio and lower efficiency relative to a control group of non-connected counterparts. Therefore, in the current debate on the reform of the statutes of the Italian cooperative banks, we argue that the problem is not for politicians to be in the boards but for them to hold executive positions.Cooperative Banks, Politics, Corporate Governance

Corporate culture and shareholder value in banking industry

This paper analyses the casual relationship between corporate culture and shareholder value using a sample of large banks in the French, German, Italian and U.K. banking systems over the 2000 to 2003 period. Firstly, we measure shareholder value using an Economic Value Added estimated through a procedure tailored to account for banking peculiarities. Secondly, we measure corporate culture using language as its particular artifact and developing a cultural survey based on the application of a text-analysis model to a corpus of reference texts produced by the sample of banks. We posit six hypotheses regarding the relationship between corporate culture and bank profits and shareholder value. Our results noticeably show that bank profits and shareholder value benefit from different orientations of banking corporate culture.

Does investor attention influence stock market activity? The case of spin-off deals

This paper investigates empirically the nature of the interactions between mass media, investor attention and the stock market using data from a sample of 16 spin-off deals traded on NYSE and published between 2004 and 2010 in “Wall Street Journal”, the US’s second-largest newspaper by circulation. The results show that: i) the impact of media sentiment on the stock market reactions is enhanced / moderated by the level of attention of investors; ii) individual investors’ attention is grabbed by stocks experiencing high trading volumes on the previous day; iii) high attention could result in downward pressure on stock market returns.Media Sentiment, Investor Attention, Internet Search, Spin-off