The Italian Chamber of Lords Sits on Listed Company Boards: An Empirical Analysis of Italian Listed Company Boards from 1998 to 2006

Abstract

The purpose of the present paper is to contribute to the literature on country interlocks by illustrating and analysing the interlocking directorships in the Italian listed companies from 1998 to 2006. We find that over the entire period a high percentage of the Italian listed companies are connected with each other through a very small minority of directors. Such group of interlocking (overwhelmingly male) directors shows a remarkable stability over time with very few entrants and very few exits mainly related to the passing away of the director. We define them for brevity the Lords of the Italian stockmarket. Lords tend to belong to families of directors, with the first five families having more than 100 directorships in nine years. The highest level of connectivity concerns those companies that belong to the MIB 30/S&P-MIB 40 index, the Italian Blue Chips. In particular, practically all the financial Blue Chips are connected with each other through a web of directors continuously from 1998 to 2006. The extent, depth, and stability of the connections among the Italian listed companies, and in particular the main Italian financial companies, raise doubts on the extent of their competitive behaviour.

An Attempt to Disperse the Italian Interlocking Directorship Network: Analyzing the Effects of the 2011 Reform

“…Similar effects of different regulations on networks were found by Drago et al (2009) which showed that the reforms of corporate governance in the period 1998-2007 had an impact on the networks considered. We also found a community structure in the Italian directorship network and in this case the result is consistent with Piccardi et al (2009).…”

Are Family Firms Different in Choosing and Adjusting Their Capital Structure? An Empirical Analysis through the Lens of Agency Theory

“…Good agency relationships between controlling families and banks make deviations from target leverage more negotiable, with little or no penalty. We argue that Italian family firms face lower agency costs of debt because of the tight links between controlling families and banks (Bianchi et al, 2001;Santella et al, 2007).…”

“…Caprio and Croci (2008) measure the voting premium in Italy from 1974 to 2003 and find that it has decreased over time but remained relatively high: it was 57% in 1990, 65% in 1995, 37% in 2000, and 20% in 2003. Finally, we may indirectly infer that, in Italy, agency costs of debt may be lower in family-controlled firms than in non-family peers. Bianchi et al (2001) and Santella et al (2007), by analyzing the relevance of interlocking directorship in Italian listed firms, show a huge network of director interlocks. This network heavily involves directors of non-financial firms controlled by families that hold seats on the board of directors of banks and other financial institutions, and vice versa.…”

“…Second, issuing equity may threaten family control; family owners should therefore prefer debt in place of equity. Third, in Italy, families that control non-financial listed firms seem to have close ties to the banking system mainly through interlocking directorship (Bianchi et al, 2001;Santella et al, 2007) and personal connections. The tight links between family owners and banks give the lender superior monitoring abilities as well as the possibility to establish with the firm long-lasting and trust-based relationships that reduce agency costs of debt.…”

An Attempt to Disperse the Italian Interlocking Directorship Network: Analyzing the Effects of the 2011 Reform

“…The Italian capitalism has been characterized by the presence of cross shareholdings, pyramidal groups and as well as ID. Santella et al (2009) and Drago et al (2015) provide evidence that Italian capitalism was characterized by the use of the cross-financial participation by the "industrial families". In both cases cross-financial participation was typically associated with a dense interlocking directorship structure.…”