Corporate governance, moral hazard and conflict of interest in Italian universal banking, 1914-1933

Stefano Battilossi ()

IFCS - Working Papers in Economic History.WH from Universidad Carlos III de Madrid. Instituto Figuerola

Abstract: Universal banking is widely held to enjoy comparative advantages in corporate finance. Recent theories of financial intermediation argue that 'insider systems' are better suited to effectively deal with long-term growth and moral hazard problems. However, little attention (if any) is usually paid to corporate governance problems that are specific to universal banking. How can banks' ownership structure and agency problems influence their ability to address longterm growth and moral hazard problems? Under which institutional arrangements, incentives and constraints can universal banking effectively realize its potential? The paper looks at such issues through the experience of interwar Italy. The evolution of universal banking in the 1920s emerges as heavily exposed to potentially serious problems of moral hazard and conflicts of interest, due to inefficient corporate governance, lack of external controls and a moral-hazard-enhancing institutional set-up. These factors may distort bank managers' incentives, affect strategic trade-offs and lead to unsound banking. The findings are consistent with that part of corporate governance literature which points to the potential for moral hazard and conflicts of interest inherent to universal banking and emphasise the conditional and historically-specific nature of its alleged benefits.

Date: 2003-02
New Economics Papers: this item is included in nep-his
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://e-archivo.uc3m.es/rest/api/core/bitstreams ... b542eea80622/content (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cte:whrepe:wh030703

Access Statistics for this paper

More papers in IFCS - Working Papers in Economic History.WH from Universidad Carlos III de Madrid. Instituto Figuerola
Bibliographic data for series maintained by Ana Poveda ().