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Abstract:
This paper studies the turnover of board of directors members in a sample of 72 companies listed on the Milan Stock Exchange during the period 1988-1996. We investigate whether board members change more frequently when company performance is poor, as the literature suggests, and whether and how the ownership structure of Italian companies affects these relationships. We find that there is a statistically significant and negative relationship between firm performance and CEO turnover and that this relationship depends on the ownership structure of firms. Turnover is lower in family controlled firms and higher in firms that experienced a change in the controlling shareholder. The latter firms also have a stronger turnover-performance relationship. We find evidence supporting the hypothesis that changes in control are an extreme form of turnover. We also find evidence of a monitoring role of the second largest shareholder. Also the turnover of top executives exhibits a negative relationship with performance. Board turnover instead is unrelated to performance but is related to the firm's ownership structure. Overall our findings suggest that the characteristics of the Italian economy deeply affect the turnover of directors and have implications that go beyond the specific case study.

Abstract:
The classical Bagehot's conception of a Lender of Last Resort (LOLR) that lends to illiquid banks has been criticized on two grounds: on the one hand, the distinction between insolvency and illiquidity is not clear cut; on the other a fully collateralized repo market allows Central Banks to provide the adequate aggregated amount of liquidity and leave the responsibility of lending uncollateralized to the banks. The object of this paper is to analyze rigorously these issues by providing a framework where liquidity shocks cannot be distinguished from solvency ones and ask whether there is a need for a LOLR and how should it operate in the absence of systemic threats. Determining the optimal LOLR policy requires a careful modeling of the structure of the interbank market and of the closure policy. In our set up, the results depend upon the existence of moral hazard. If the main source of moral hazard is the banks' lack of incentives to screen loans, then the LOLR may have to intervene to improve the efficiency of an unsecured interbank market; if instead, the main source of moral hazard is loans monitoring, then the interbank market should be secured and the LOLR should never intervene.

Lender of Last Resort, Interbank Market, Liquidity

Abstract:
This paper analyses the turnover of board of directors members on a sample of companies listed on the Milan Stock Exchange in the period 1988-1996. Our aim is to investigate if board members change more frequently when company performance is poor, as the literature suggests, if this relationship is similar for C.E.O.s and other board members, and if and how the ownership structure of Italian companies affects these relationships. We use three different measures of board of directors turnovers: turnover A is the turnover of all board members; turnover B is the turnover of the President, Vice-President, C.E.O. and General Manager; finally turnover C is the turnover of C.E.O.s only. We find that changes in ownership affect turnover and that the relationship between turnover and performance is stronger in companies that have experienced a change in the controlling shareholder.

Board of Directors, Corporate governance, Financial agency

Abstract:
We study the problem of multiple financiers who want to extract income from a privately informed agent and design their financial contracts non-cooperatively. Our analysis reveals that the degree of coordination between financiers has strong implications for the shapes of financial contracts. Equity like contracts and excessive monitoring emerge when principals are able to delegate monitoring or verify each others monitoring efforts. When this is not possible, free riding in monitoring weakens the incentive to monitor high profit levels, so that flat payments, debt-like contracts and very low levels of monitoring appear.

monitoring, common agency, costly state verification

Abstract:
We analyze top executives turnover in Italian Banks in the period 1993-2002. We relate executive's turnover to bank performance as measured by return on equity and non performing loans, and to local connections of the manager, controlling for other bank and manager characteristics. We classify banks in two groups according to their voting mechanisms. The first group, joint stock company banks, includes all banks (Commercial and Saving and Loans) with voting mechanism based on the number of shares owned. The second group includes all cooperative banks that have a per capita voting mechanism: Mutual, Rural and Cooperative banks.

First, we consider OLS regressions with and without bank fixed effects, and managers fixed effects. We find that top executive turnover is affected by bank organizational form. President and General Manager turnover are negatively related to return on equity in joint stock company banks, while in cooperative banks they are related to both performance variables. CEO turnover, which we observe only in the first group of banks, is ambiguously related to bank performance. Top executives in all types of banks are strongly locally connected. The relationship between local connections and turnover depends on the category of banks. In the banks chartered as Joint Stock Company only the turnover of the president is negatively related to connections, while for the Mutual, Rural and Cooperative Banks the turnover of both President and General Director is negatively related to connections. Consistently with previous literature we find that turnover is higher in banks affiliated to a group. Finally for both groups of banks and for all positions the presence of a contemporaneous episode of turnover in the same bank increases the likelihood of turnover, thus suggesting that a discipline mechanism is at work.

Then, we construct a measure of managers' tenure and we look at the probability of turnover conditional on tenure. We find that the probability of turnover increases with tenure for all positions and all types of banks, and that, for a given performance, the hazard function is lower the higher the degree of connections.

Corporate Governance, Executive Turnover, Banking

Abstract:
We model systemic risk in an interbank market. Banks face liquidity needs as consumers are uncertain about where they need to consume. Interbank credit lines allow banks to cope with these liquidity shocks while reducing the cost of maintaining reserves. However, the interbank market exposes the system to a coordination failure (gridlock equilibrium) even if all banks are solvent. When one bank is insolvent, the stability of the banking system is affected in various ways depending on the patterns of payments across locations. We investigate the ability of the banking industry to withstand the insolvency of one bank and whether the closure of one bank generates a chain reaction on the rest of the system. We analyze the coordinating role of the Central Bank in preventing payments' systemic repercussions and we examine the justification of the "too-big-to-fail-policy".

Abstract:
We model systemic risk in an interbank market. Banks face liquidity needs as consumers are uncertain about where they need to consume. Interbank credit lines allow banks to cope with these liquidity shocks while reducing the cost of maintaining reserves. However, the interbank market exposes the system to a coordination failure (gridlock equilibrium) even if all banks are solvent. When one bank is insolvent, the stability of the banking system is affected in various ways depending on the patterns of payments across locations. We investigate the ability of the banking industry to withstand the insolvency of one bank and whether the closure of one bank generates a chain reaction on the rest of the system. We analyze the coordinating role of the Central Bank in preventing payments' systemic repercussions and we examine the justification of the "too-big-to-fail-policy".

Abstract:
The increased fragility of the banking industry has generated growing concern about the risks associated with the payment systems. Although in most industrial countries different interbank payment systems coexist, little is really known about their properties in terms of risk and efficiency. We tackle this question by comparing the two main types of payment systems, gross and net, in a framework where uncertainty arises from several sources: the time of consumption, the location of consumption and the return on investment. Payments across locations can be made either by directly transferring liquidity or by transferring claims against the bank in the other location. The two mechanisms are interpreted as the gross and net settlement systems in interbank payments. We characterize the equilibria in the two systems and identify the trade-off in terms of safety and efficiency.

Abstract:
The increased fragility of the banking industry has generated growing concern about the risks associated with the payment systems. Although in most industrial countries different interbank payment systems coexist, little is really known about their properties in terms of risk and efficiency. We tackle this question by comparing the two main types of payment systems, gross and net, in a framework where uncertainty arises from several sources: the time of consumption, the location of consumption and the return on investment. Payments across locations can be made either by directly transferring liquidity or by transferring claims against the bank in the other location. The two mechanisms are interpreted as the gross and net settlement systems in interbank payments. We characterize the equilibria in the two systems and identify the trade-off in terms of safety and efficiency.