Connections and Performance in Bankers' Turnover: Better Wed over the Mixen than over the Moor

43 Pages Posted: 29 Oct 2008

See all articles by Erich Battistin

Erich Battistin

Institute for Fiscal Studies (IFS)

Clara Graziano

Università degli Studi di Udine - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Bruno Maria Parigi

University of Padova - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: October 2008

Abstract

In this paper we study top executive turnover in Italian Banks over the period 1993-2001. We relate the probability of survival of top executives (Presidents, CEOs and General Managers) to bank performance and the manager's local connections, controlling for (observable and unobservable) bank and manager characteristics by exploiting longitudinal information on bank-manager appointments. We measure the extent of managers' local connections by the distance between the province of the bank's headquarters and the manager's province of birth. We show that top managers tend to be local in the sense that the distribution of this distance is heavily skewed towards zero. On the basis of this evidence, we address two questions. First, we investigate whether connections affect the duration of the appointment at the bank. Second, we ask whether connections entrench managers at the expense of the bank's performance. We find that connections generally increase the probabilities of managers surviving at their banks, and that the positive effect of performance on tenure (as amply documented by the executive turnover literature) disappears once connections are taken into account. On the other hand, we provide evidence against the hypothesis that managerial connections contain information valuable for enhancing a bank's performance. In particular, we find that highly connected boards cause the shorter survival of banks, and that those who benefit from connections are top managers themselves (mostly Presidents and General Managers). This suggests that connections may be collusion devices with which to maintain and share rents.

Keywords: connections, executive turnover, commercial and cooperative banks

JEL Classification: J40, J63, G21, G34

Suggested Citation

Battistin, Erich and Graziano, Clara and Parigi, Bruno Maria, Connections and Performance in Bankers' Turnover: Better Wed over the Mixen than over the Moor (October 2008). CESifo Working Paper Series No. 2439, Available at SSRN: https://ssrn.com/abstract=1291643

Erich Battistin

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

Clara Graziano (Contact Author)

Università degli Studi di Udine - Department of Economics ( email )

Via Tomadini 30
33100 Udine
Italy
+0432+249216 (Phone)
+0432+249229 (Fax)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

Bruno Maria Parigi

University of Padova - Department of Economics ( email )

via Del Santo 33
Padova, 35123
Italy

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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