The Impact of Corporate Governance on the Market Value of Financial Institutions: Empirical Evidences from Italy

Banks and Bank Systems, Volume 7, Issue 2, 2012

15 Pages Posted: 29 Jul 2012

See all articles by Rossana Bubbico

Rossana Bubbico

the FinC - Politecnico di Milano, Management, Economics and Industrial Engineering Department

Marco Giorgino

Polytechnic University of Milan

Barbara Monda

RiskGovernance - Politecnico di Milano, Management, Economics and Industrial Engineering Department

Date Written: May 16, 2012

Abstract

This paper analyses how the quality of the corporate governance system impacts on the market value of the financial institutions listed on the Italian Stock Exchange. Implementing a good corporate governance is costly, therefore verifying whether the investment is worth its cost is a relevant issue. Despite the central role that financial institutions play in the real economy, there are few studies that focus specifically on the financial industry; filling this gap in literature is especially relevant to Italy, where the enterprises are highly dependent on the banking system for their financing needs.

The first step of the present study is the assessment of the corporate governance quality of the sample companies through the Corporate Governance Index (CGI). CGI is a scoring model that analyses four different macro-areas of governance: Board, Compensation, Shareholders’ and Stakeholders’ Rights, and Disclosure. A Cross-sectional data regression is then used to study the relationship between the corporate governance quality and the market value of financial institutions. The analysis, using 2010 data, proves that there is a positive and statistically significant correlation between corporate governance and performance: this finding supports the hypothesis that governance creates value for companies and that investments to implement effective governance systems give net positive benefit and should therefore be pursued. Hence financial institutions should be encouraged to improve their corporate governance systems.

Keywords: corporate governance, corporate governance index, banks performance, governance of financial institutions

JEL Classification: G21, G32, G34

Suggested Citation

Bubbico, Rossana and Giorgino, Marco and Monda, Barbara, The Impact of Corporate Governance on the Market Value of Financial Institutions: Empirical Evidences from Italy (May 16, 2012). Banks and Bank Systems, Volume 7, Issue 2, 2012, Available at SSRN: https://ssrn.com/abstract=2119497

Rossana Bubbico

the FinC - Politecnico di Milano, Management, Economics and Industrial Engineering Department ( email )

Italy

Marco Giorgino

Polytechnic University of Milan ( email )

vial Lambruschini 4B
Milan, Milan 20156
Italy

Barbara Monda (Contact Author)

RiskGovernance - Politecnico di Milano, Management, Economics and Industrial Engineering Department ( email )

Piazza Leonardo da Vinci, 32
Milano, 20133
Italy

HOME PAGE: http://www.risk-governance.eu

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