Connections and performance in bankers’ turnover

Erich Battistin, Clara Graziano and Bruno M. Parigi

European Economic Review, 2012, vol. 56, issue 3, 470-487

Abstract: In this paper we study the impact of the connections of the top executives (Presidents, CEOs and General Managers) of Italian banks on their turnover and on bank performance. We measure managers’ connections by the kilometer distance between the province of the bank's headquarter 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 investigate whether connections affect the duration of the appointment at the bank, and whether connections entrench managers at the expense of the bank's performance. We find that connections generally decrease the probability of bank manager’s turnover, and that the positive effect of performance on tenure is strongly attenuated once connections are taken into account. Furthermore we find that for any bank type performance does not increase with connections. On the contrary, we show that having connected managers hurts performance in Mutual, Cooperative and Rural banks. Overall these findings suggest that connections are collusion devices to share and maintain rents at the expenses of bank performance.

Keywords: Corporate governance; Executive turnover; Commercial and Cooperative banks; Panel data analysis; Survival analysis; Social networks (search for similar items in EconPapers)
JEL-codes: G21 G34 J40 J63 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:56:y:2012:i:3:p:470-487

DOI: 10.1016/j.euroecorev.2011.11.006

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