Franco Fiordelisi

The efficiency of cooperative banks: the impact of environmental economic conditions

This article analyses the cost and profit efficiencies of cooperative banks. Cooperative banks are small financial institutions providing financial services in several local geographical areas, and they play a fundamental role in various European banking systems. Even though these small financial institutions present a homogeneous business model, their performance is strongly influenced by the economic conditions of their local markets. The efficiency measurement has to account for the heterogeneity of the environmental conditions. By using a large sample of Italian cooperative banks (2683 year observations) collected between 2000 and 2005, we estimated the cost and profit efficiency using Stochastic Frontier Analysis (SFA) and including various environmental variables accounting for disparities among Italian regions. We show that environmental conditions substantially influence efficiency estimates: banks in the Northeast of Italy are shown to be the more cost efficient, benefiting from a favourable environment, while banks in the South of Italy display a higher profit efficiency, probably due to lower competitive pressures. We show that the coefficients for branches and the concentration of cooperative banks with respect to other banks are important both on the cost side and the profit side.

The impact of corporate governance press news on stock market returns

Stock market prices reflect information regarding firms business environments, operations and, in general, their fundamentals. Recently, various studies have analysed the link between news coverage and stock prices but no evidence exists on how channels and ways of communication of information affect investors behaviour. We analyses these aspects focussing on a large sample of corporate governance news published between 2003 and 2007 in Il Sole 24 Ore, Italys major financial newspaper. We show that before news is made public investors are only able to assess the type of corporate governance event underlying it. After publication, investors are influenced by the content (positive or negative) and the tone of communication (strong or weak) of the news.

Efficiency in the factoring industry

The efficiency and productivity in the Italian factoring industry between 1993 and 1997 is investigated using DEA. The factoring industry is an important part of many financial systems and it has established itself as a major source of finance and credit management for a growing number of companies. However, as far as the authors are aware no studies have applied frontier methodologies to examine the efficiency and productivity of this industry. This paper focuses on the Italian market, the second largest in the world after the UK. The results suggest that there are substantial cost savings to be had in the Italian factoring industry: the mean cost inefficiency in the Italian factoring industry over the period 1993–1997 ranged between 14% and 22%. These inefficiencies are mainly generated by allocative rather than technical inefficiencies. Scale and technical inefficiencies seem to be similar in magnitude and the supposed importance of the latter typically found in the banking efficiency literature, are not observed in Italian factoring. Firm size does not appear to be related to technical, allocative and economic efficiency and the hypothesis that ownership structure influences factoring firm efficiency could not be rejected. In order to analyse efficiency change over time the Malmquist index is used. Total factor productivity was decomposed into technical change and efficiency change and the latter was further divided into pure efficiency and scale efficiency change. Productivity changes were slight over the period 1993–1996, while a substantial increase in productivity occurred between 1996 and 1997: the latter appears to be the result of a large improvement in the technology and a positive scale efficiency change, however, this was slowed down by a negative pure efficiency change.

Efficiency and Risk Taking in European Banking

The recent period of crisis in credit markets has highlighted the crucial role of bank risk taking. Our paper assesses the inter-temporal relationships among bank efficiency, capital and bank risk-taking in the EU-26 commercial banking industry between 1995 and 2007. Our results support the bad management-, luck-, cost and revenue skimping hypotheses. Overall, our paper provides evidence that higher performance (enhanced efficiency) has been not related to higher managerial skills, rather to cost and revenue skimping and bad management.

Bancassurance efficiency gains: evidence from the Italian banking and insurance industries

Bancassurance has rapidly grown in Europe over the past 20 years catching the attention of managers and academia. Most dedicated studies have only been descriptive in nature, while the number of empirical studies is very limited. Potential efficiency gains are a poorly investigated issue, even though cost and revenue synergies are commonly recognised among the main economic rationales for conglomeration. Our paper aims to assess bancassurance performance gains (from both the banking and the insurance standpoints) in the Italian banking and insurance sectors over the period 2005–2006 by estimating cost and profit efficiency using stochastic frontier analysis. With regard to the banking industry, we do not show any strong evidence in favour of entering the life insurance business. The investigation into the insurance industry highlights the competitive viability of bancassurance as a distribution channel, especially in terms of cost efficiency. In terms of profitability, our findings suggest that the mix of products should be continuously revised to adapt to customer needs and the evolution of financial markets. As a consequence, ownership links are not necessarily the best bancassurance strategy, and the parties involved should also consider more flexible forms of cooperation, such as cross-selling agreements and non-equity strategic alliances.

Competition and Financial Stability in European Cooperative Banks

Cooperative banks are a driving force for socially committed business at a local level accounting for around one fifth of the European Union (EU) bank deposits and loans. Despite their importance, little is known about the relationship between bank stability and competition for these small credit institutions. Does competition affect the stability of cooperative banks? Does banks’ financial stability increase/decrease in case of higher competition? We assess the dynamic relationship between competition and bank soundness (both in the short and long run) in the European cooperative banking between 1998 and 2009. We obtain three main results. First, we support the competition-stability view proposed by Boyd and De Nicolò (2005). Bank market power negatively Granger-cause banks’ soundness meaning that there is a positive relationship between competition and stability. Second, we provide evidence of the negative impact of the 2007-2009 financial crisis on the individual risk exposure of cooperative banks although it does not change the relationship between competition and stability. Third, we show that herding behavior affects positively bank soundness. Our findings have important policy implications for designing and implementing regulations that enhance the overall stability of the financial system.

New drivers of performance in a changing financial world

Preface Acknowledgements Notes on the Contributors PART I: NEW FINANCIAL PRODUCTS AND APPROCHES: FOCUS ON PERFORMANCE European Exchanges, Investor Behaviour and Asset Allocation Criteria: Country vs Industry Approach A.Carretta& G.Nicolini The Performance Evaluation of Hedge Funds: A Comparison of Different Approaches A.Carretta& G.Mattarocci Real Estate Investments: The Case of Italian Market C.Porzio& G.Sampagnaro Real Estate Selection and Portfolio Construction Model: Data Analysis from the Italian Market C.Giannotti& G.Mattarocci Funds of Funds Portfolio Composition and its Impact on the Performance: Evidence from the Italian Market A.Carretta& G.Mattarocci Market Characteristics and Chaos Dynamics: An International Comparison G.Mattarocci PART II: DETERMINANTS OF VALUE CREATION IN BANKING How do Banks Make Money for Their Owners? F.Fiordelisi Do Mergers and Acquisition Lead to Shareholder Value in European Banking: A Short Term Perspective M.Pallotta Does Corporate Culture Affect Shareholder Value? Evidence from European Banking A.Carretta, V.Farina, F.Fiordelisi& P.Schwizer PART III: REGULATION AND CHANGE IN BANKS AND CUSTOMERS BEHAVIOUR Transparency Between Banks and their Customers. Information Needs and Public Intervention M.Cratelli The Consumers Financial Capability: A Regulatorys Perspective G.Nicolini Corporate Disclosure Determinants: A Cross-country Investigation V.Farina Single European Payments Area: Opportunities for Corporates and Consumers L.Leonelli Coordination& Cooperation in Financial Regulation: Do Regulators Comply with Banking Culture? A.Carretta, V.Farina& P.Schwizer

Efficiency and Probability of Default in Cooperative Banking

Cooperative banks are small and their survival is not guaranteed by the Too Big To Fail policy so that their default can be concrete in time of crises. We analyze the contribution of efficiency to cooperative bank probability of default. We estimate several measures of bank efficiency (focusing on costs, revenues, net profits, operating income, intermediation and interest margins) and we run the survival analysis to identify if different managerial abilities play a different role. By using a discrete-time survival model, we show that efficiency has a positive and statistically significant link with the probability of survival of cooperative banks.