Giorgio Brunello

CEO turnover in insider-dominated boards: The Italian case

Abstract We investigate CEO turnover in relationship to performance, ownership concentration and CEO ownership in a sample of 60 private companies listed on the Italian Stock Exchanges over the 9-year period 1988–1996. Concentrated ownership, family control, limited institutional investors activism, and lack of main bank monitoring make Italy a corporate governance environment dominated by insiders. As a result, boards of directors are dominated by insiders and/or represent the interests of the controlling shareholders. Our main finding is that CEO turnover is negatively related to firm performance also in this environment, but this relationship holds only if the controlling shareholder is not the CEO. Our findings suggest that insiders with large stakes monitor and replace under-performing outside CEOs. The paper offers positive empirical evidence that non-CEO controlling shareholders are a governance mechanism that provides a substitute for outside members on boards of directors in lowering agency costs. When the CEO is an owner, however, we have all the negative aspects of insider-dominated boards.

Changes in Compulsory Schooling, Education and the Distribution of Wages in Europe

Using data from 12 European countries and the variation across countries and over time in the changes of minimum school leaving age, we study the effects of the quantity of education on the distribution of earnings. We find that compulsory school reforms significantly affect educational attainment, especially among individuals belonging to the lowest quantile of the distribution of ability. Contrary to previous findings in the relevant literature, we find that additional education reduces wage inequality below median income and increases it above median income. There is also evidence in our data that education and ability are complements in the production of human capital and earnings. While these results support an elitist education policy – more education to the brightest, they also suggest that investing in the less fortunate but bright could payoff both on efficiency and on equity grounds.

Executive compensation and firm performance in Italy

Abstract We use survey data to investigate the determinants of executive pay in a sample of Italian firms. To the best of our knowledge this is the first empirical study on the compensation of Italian executives. Our key hypothesis is that the characteristics of the Italian capital market, corporate governance and the specific relationship between banks and firms imply a low fraction of incentive pay over total compensation and a low sensitivity of incentive pay to firm performance. We find evidence that supports this hypothesis. We estimate that an increase of real profits per firm by 1 billion lire increases the pay of upper and middle managers by only 31 thousand lire, more than the increase found for lower management (6 thousand). Furthermore, pay–performance sensitivity is higher in foreign-owned firms, in listed firms, and in firms affiliated to a multinational group.

Widening Differences in Italian Regional Unemployment

Regional unemployment differentials among Italian regions have widened since the mid 1980s, especially between the leading Northern and Central areas and the underdeveloped South. We suggest that the following elements are important to explain the observed phenomenon: a) employment performance in the South has worsened considerably in the presence of sustained labour force growth; b) labour mobility from the South to the NC areas has sensibly declined with the reduction in earnings differentials and with the increase in social transfers per head; c) real wages in the South are not affected by local unemployment conditions but depend on the unemployment rate prevailing in the leading areas; d) the labour share increase particularly fast in the South during the 1970s, mainly as a consequence of the elimination of institutions that allowed the presence of significant wage differentials; e) a parsimonious description of the increase in regional unemployment differentials is that the Northern and Southern areas responded in an asymmetric way both to the increase in real social transfers per head and to the reduction in the real price of energy.

On the Complementarity between Education and Training in Europe

This paper is an empirical investigation of the complementarity between education and training in 13 European countries, based on the European Community Household Panel (ECHP). After confirming the standard result that training incidence is higher among individuals with more education, I find that the relationship between educational attainment and training incidence varies significantly across countries and birth cohorts. I show that individuals have a higher training incidence in countries with a more educated labor force, a less stratified schooling system, a higher union density and a lower value of the Kaitz index. I also find evidence that individuals with more education and limited labor market experience enjoy higher private returns from recent training than individuals with the same experience and less education. More experienced individuals with higher education, however, have lower returns from recent training than less educated workers with the same experience.

Education and Earnings Growth: Evidence from 11 European Countries

We use cohort data from 11 European countries to study whether experience profiles differ by educational attainment. Previous literature does not provide a clear answer to this question, that is important to evaluate private returns to education over the working life of individuals. We find evidence that employees with tertiary education have steeper experience profiles than employees with upper secondary or compulsory education. Hence, education provides not only an initial labor market advantage but also a permanent advantage that increases with time in the labor market. We also find that differences in earnings growth by education are lower in countries with a higher level of corporatism and higher in countries which have experienced both relatively fast labor productivity growth and a relatively low educational attainment. The educational system also seems to matter, because countries with a more stratified system of secondary education have smaller differences in earnings growth by education.

Why Do Students Expect to Stay Longer in College? Evidence from Europe

We investigate the expected college completion time of European college students by using data from a survey of more than 3000 students in 10 countries. We explain observed excess time to graduation by paying special attention to labor market variables, such as unemployment, wage differentials and employment protection, and to the funding of tertiary education.

The Economic Returns to Schooling for Italian Men: An Evaluation Based on Instrumental Variables

We study the relationship between (log) current earnings and educational levels in Italy. In line with other international evidence, we find that OLS underestimates the marginal return to additional education. When the endogeneity of educational choice is taken into account, the marginal return from one additional year in junior high school increases from 3.2 to 5 percent. Similarly, the marginal return from one additional year in secondary school or in college increases respectively from 3.4 to 4.2 percent and from 6.4 to 7.2 percent. Using longitudinal data, we also find that individuals of the same age with higher education experience faster earnings growth. Hence, there is evidence that wage differentials by education widen as individuals grow older.

Educational Standards in Private and Public Schools

We show that, when school quality is measured by the educational standard and attaining the standard requires costly effort, secondary education needs not be a hierarchy with private schools offering better quality than public schools, as in Epple and Romano, 1998. An alternative configuration, with public schools offering a higher educational standard than private schools, is also possible, in spite of the fact that tuition levied by private schools is strictly positive. In our model, private schools can offer a lower educational standard at a positive price because they attract students with a relatively high cost of effort, who would find the high standards of the public school excessively demanding. With the key parameters calibrated on the available micro-econometric evidence from the US, our model predicts that majority voting in the US supports a system with high quality private schools and low quality public schools, as assumed by Epple and Romano, 1998. This system, however, is not the one that would be selected by the social planner, who prefers high quality public schools combined with low quality private schools.

PEER EFFECTS IN HIGHER EDUCATION: DOES THE FIELD OF STUDY MATTER?

Does the peer effect vary with the field of study? Using data from a middle-sized public university located in Southern Italy and exploiting the random assignment of first year students to college accommodation, we find that roommate peer effects for freshmen enrolled in the Hard Sciences are positive and significantly larger than for freshmen enrolled in the Humanities and Social Sciences. We present a simple theoretical model which suggests that the uncovered differences between fields in the size of the peer effect could plausibly be generated by between-field variation in labor market returns, which affect optimal student effort.