Over the past decades, specialized board committees have emerged because of the spread of principles and best practices recommendations and the increasing attention for the effectiveness of corporate governance. At the date, in the Italian banking sector, their institution is mandatory to large and intermediate banks, whereas it is still voluntary for small banks. Accordingly, this study investigates the determinants of their voluntary constitution in “small dimension” Italian Less Significant Institutions (LSI) banks. Drawing on Agency Theory Framework, the hypothesized determinants are board size, CEO appointment, and independent directors. As suggested by earlier research, company size, profitability, and risk (NPL ratio and Tier1 ratio) are employed as control variables. The study is conducted on 197 Italian banks LSI classified as small dimension, using a hand-collected dataset for governance variables. The results are consistent with the hypotheses. The findings obtained from an OLS regression show a significant and positive relationship between the board committees’ voluntary constitution and board size, and between the former and independent directors. This suggests that the establishment of additional specialized board committees allows the banks to reduce the inefficiencies due to the board’s greater dimensions. In the same vein, such committees can mitigate agency costs generated by the presence of a higher number of independent directors. This paper contributes to the existing literature about the determinants of board committees’ voluntary institutions, shedding new light on banking governance. Furthermore, this study provides a new and significant perspective from Italy, where empirical evidence is still relatively unknown. The outcomes can be useful to the regulators and practitioners. We recommend that banks evaluate to establish board committees into their corporate governance mechanisms to improve their performance. Moreover, regulatory reforms are suggested to reduce board committees’ implementation costs, especially for the “small dimension” Italian LSI banks. Finally, possible future research topics are discussed by identifying gaps and unexposed themes in the bank corporate governance field.
Le determinanti della costituzione volontaria dei comitati endo-consiliari specializzati nelle banche italiane LSI di minori dimensioni: prime evidenze empiriche
Giuseppe Sannino;Giovanni Zampone;Serena De Iorio
2021
Abstract
Over the past decades, specialized board committees have emerged because of the spread of principles and best practices recommendations and the increasing attention for the effectiveness of corporate governance. At the date, in the Italian banking sector, their institution is mandatory to large and intermediate banks, whereas it is still voluntary for small banks. Accordingly, this study investigates the determinants of their voluntary constitution in “small dimension” Italian Less Significant Institutions (LSI) banks. Drawing on Agency Theory Framework, the hypothesized determinants are board size, CEO appointment, and independent directors. As suggested by earlier research, company size, profitability, and risk (NPL ratio and Tier1 ratio) are employed as control variables. The study is conducted on 197 Italian banks LSI classified as small dimension, using a hand-collected dataset for governance variables. The results are consistent with the hypotheses. The findings obtained from an OLS regression show a significant and positive relationship between the board committees’ voluntary constitution and board size, and between the former and independent directors. This suggests that the establishment of additional specialized board committees allows the banks to reduce the inefficiencies due to the board’s greater dimensions. In the same vein, such committees can mitigate agency costs generated by the presence of a higher number of independent directors. This paper contributes to the existing literature about the determinants of board committees’ voluntary institutions, shedding new light on banking governance. Furthermore, this study provides a new and significant perspective from Italy, where empirical evidence is still relatively unknown. The outcomes can be useful to the regulators and practitioners. We recommend that banks evaluate to establish board committees into their corporate governance mechanisms to improve their performance. Moreover, regulatory reforms are suggested to reduce board committees’ implementation costs, especially for the “small dimension” Italian LSI banks. Finally, possible future research topics are discussed by identifying gaps and unexposed themes in the bank corporate governance field.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
