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Does Bank Institutional Setting Affect Board Effectiveness? Evidence from Cooperative and Joint-Stock Banks

D'Amato, A. and Gallo, A. (2017). Does Bank Institutional Setting Affect Board Effectiveness? Evidence from Cooperative and Joint-Stock Banks. Corporate Governance, 25(2), pp. 78-99. doi: 10.1111/corg.12185

Abstract

Research Question/Issue
Do cooperative banks suffer from board deficiencies less frequently and severely than joint-stock banks? To answer this question, we analyze banks operating in Italy during the period 2006–2012 to examine whether the governing bodies of cooperative banks are less effective in carrying out their duties than those of joint-stock banks. Deficiencies in the governing body are measured by sanctions imposed by the supervisory authority.

Research Findings/Insights
Findings revealed that the boards of directors of cooperative banks were sanctioned more often than board of directors of joint-stock banks. Furthermore, board turnover mediates the relationship between the cooperative status and board deficiencies.

Theoretical/Academic Implications
This study provides empirical evidence in support of the weakness of corporate governance in cooperative banks. Methodologically, our approach is novel in that we adopt a measure of board effectiveness/deficiency based on an independent third-party perspective (supervisory authority) that is not biased by the different objective function of the two types of banks.

Practitioner/Policy Implications
The findings have several policy and managerial implications. We contribute to the ongoing debate on the proposal for flexible regulation of corporate governance for cooperative banks and emphasize that policy-makers and regulators should rethink the corporate governance structures of cooperative banks. In particular, the study reveals how board turnover should be carefully monitored to reduce board deficiencies at the bank level.

Publication Type: Article
Additional Information: This is the peer reviewed version of the following article: D'Amato, A., and Gallo, A. (2017) Does Bank Institutional Setting Affect Board Effectiveness? Evidence from Cooperative and Joint-Stock Banks. Corporate Governance: An International Review, 25: 78–99., which has been published in final form at http://dx.doi.org/10.1111/corg.12185. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
Publisher Keywords: Corporate Governance, Board Effectiveness, Institutional Setting, Banking Industry, Enforcement Actions
Subjects: H Social Sciences > HG Finance
Departments: Cass Business School > Finance
URI: http://openaccess.city.ac.uk/id/eprint/17575
[img] Text - Accepted Version
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