Politicians 'On Board'! Do Political Connections Affect Banking Activities in Italy?

Abstract

This paper analyzes the effects of political presence in the boards of directors of cooperative banks. We refer our analysis to all politicians (almost 160.000) belonging to a political body in Italy. Overall, our dataset contains 1.858 board members referring to 127 cooperative banks.

Results show that politically connected banks, in which politicians have executive roles in the board of directors, display higher net interest revenues, lower quality of the loans portfolio and lower efficiency relative to a control group of non-connected counterparts.

Therefore, in the current debate on the reform of the statutes of the Italian cooperative banks, we argue that the problem is not for politicians to be in the boards but for them to hold executive positions.

Keywords: cooperative banks, politics, corporate governance

JEL Classification: G21, G34