Working Paper: CEPR ID: DP14654
Authors: Guglielmo Barone; Fabiano Schivardi; Enrico Sette
Abstract: We study the effects on corporate loan rates of an unexpected change in the Italian legislation which forbade interlocking directorates between banks. Exploiting multiple firm-bank relationships to fully account for all unobserved heterogeneity, we find that prohibiting interlocks decreased the interest rates of previously interlocked banks by 16 basis points relative to other banks. The effect is stronger for high quality firms and for loans extended by interlocked banks with a large joint market share. Interest rates on loans from previously interlocked banks become more dispersed. Finally, firms borrowing more from previously interlocked banks expand investment, employment and sales.
Keywords: interlocking directorates; competition; banking
JEL Codes: G21; G34; D34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Prohibition of interlocking directorates (L49) | Decrease in interest rates of previously interlocked banks (E43) |
| Prohibition of interlocking directorates (L49) | Increased investment, employment, and sales for firms borrowing from interlocked banks (F65) |
| Prohibition of interlocking directorates (L49) | Shift towards greater competition (more dispersed interest rates) (E43) |