hero working papers

hould we trust banks when they sit on the board of directors?

Number: 117
Year: 1997
Author(s): Francesco Giavazzi (IGIER, Università Bocconi) and Marco Battaglini (Northwestern University)

When financial markets are not fully developed large shareholders are an important feature of an efficient corporate governance system. Thanks to their (relative) financial strength, banks are good candidates to perform this leading role in the governance of firms. However, in the type of monitoring provided and in the strategies that they may choose, banks are affected by significant conflicts of interests: expecially when they exert power through proxy votes and they are important lenders of the firm.