Professor Stefano Colonnello, PhD

Professor Stefano Colonnello, PhD
Current Position

since 3/20

Research Affiliate

Halle Institute for Economic Research (IWH) – Member of the Leibniz Association

since 11/22

Associate Professor of Economic Policy

Ca' Foscari University of Venice, Italy

Research Interests

  • empirical corporate finance
  • relationship banking
  • corporate governance
  • law and finance

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Professor Stefano Colonnello, PhD
Professor Stefano Colonnello, PhD
- Department Financial Markets
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Publications

Compensation Regulation in Banking: Executive Director Behavior and Bank Performance after the EU Bonus Cap

Stefano Colonnello Michael Koetter Konstantin Wagner

in: Journal of Accounting and Economics, No. 1, 2023

Abstract

The regulation that caps executives’ variable compensation, as part of the Capital Requirements Directive IV of 2013, likely affected executive turnover, compensation design, and risk-taking in EU banking. The current study identifies significantly higher average turnover rates but also finds that they are driven by CEOs at poorly performing banks. Banks indemnified their executives by off-setting the bonus cap with higher fixed compensation. Although our evidence is only suggestive, we do not find any reduction in risk-taking at the bank level, one purported aim of the regulation.

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The Real Effects of Universal Banking: Does Access to the Public Debt Market Matter?

Stefano Colonnello

in: Journal of Financial Services Research, February 2022

Abstract

I analyze the impact of the formation of universal banks on corporate investment by looking at the gradual dismantling of the Glass-Steagall Act’s separation between commercial and investment banking. Using a sample of US firms and their relationship banks, I show that firms curtail debt issuance and investment after positive shocks to the underwriting capacity of their main bank. This result is driven by unrated firms and is strongest immediately after a shock. These findings suggest that universal banks may pay more attention to large firms providing more underwriting opportunities while exacerbating financial constraints of opaque firms, in line with a shift to a banking model based on transactional lending.

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Do courts matter for Firm Value? Evidence from the U.S. Court System

Stefano Colonnello Christoph Herpfer

in: Journal of Law and Economics, No. 2, 2021

Abstract

We estimate how US state courts impact firm value by exploiting a US Supreme Court ruling that exogenously changed firms’ exposure to different courts. We find that increased exposure to more business-friendly courts is associated with positive announcement returns. We find no such association for objective court quality. Consistent with the ruling impacting firm value through the legal environment channel, we find that effects are stronger for firms with high litigation exposure. We find that the ruling led to a shift in both the geographic distribution of lawsuits and operations of firms.

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Working Papers

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The Reverse Revolving Door in the Supervision of European Banks

Stefano Colonnello Michael Koetter Alex Sclip Konstantin Wagner

in: IWH Discussion Papers, No. 25, 2023

Abstract

We show that around one third of executive directors on the boards of national supervisory authorities (NSA) in European banking have an employment history in the financial industry. The appointment of executives without a finance background associates with negative valuation effects. Appointments of former bankers, in turn, spark positive stock market reactions. This „proximity premium“ of supervised banks is a more likely driver of positive valuation effects than superior financial expertise or intrinsic skills of former executives from the financial industry. Prior to the inception of the European Single Supervisory Mechanism, the presence of former financial industry executives on the board of NSA associates with lower regulatory capital and faster growth of banks, pointing to a more lenient supervisory style.

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Trading away Incentives

Stefano Colonnello Giuliano Curatola Shuo Xia

in: IWH Discussion Papers, No. 23, 2022

Abstract

Equity pay has been the primary component of managerial compensation packages at US public firms since the early 1990s. Using a comprehensive sample of top executives from 1992-2020, we estimate to what extent they trade firm equity held in their portfolios to neutralize increments in ownership due to annual equity pay. Executives accommodate ownership increases linked to options awards. Conversely, increases in stock holdings linked to option exercises and restricted stock grants are largely neutralized through comparable sales of unrestricted shares. Variation in stock trading responses across executives hardly appears to respond to diversification motives. From a theoretical standpoint, these results challenge (i) the common, generally implicit assumption that managers cannot undo their incentive packages, (ii) the standard modeling practice of treating different equity pay items homogeneously, and (iii) the often taken for granted crucial role of diversification motives in managers’ portfolio choices.

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Dynamic Equity Slope

Matthijs Breugem Stefano Colonnello Roberto Marfè Francesca Zucchi

in: University of Venice Ca' Foscari Department of Economics Working Papers, No. 21, 2020

Abstract

The term structure of equity and its cyclicality are key to understand the risks drivingequilibrium asset prices. We propose a general equilibrium model that jointly  explainsfour important features of the term structure of equity: (i) a negative unconditionalterm premium, (ii) countercyclical term premia, (iii) procyclical equity yields, and (iv)premia to value and growth claims respectively increasing and decreasing with thehorizon. The economic mechanism hinges on the interaction between heteroskedasticlong-run growth — which helps price long-term cash flows and leads to countercyclicalrisk premia — and homoskedastic short-term shocks in the presence of limited marketparticipation — which produce sizeable risk premia to short-term cash flows. The slopedynamics hold irrespective of the sign of its unconditional average. We provide empirical support to our model assumptions and predictions.

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