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 11/19

Assistant Professor

Ca' Foscari University of Venice, Italy

since 9/15

Head of the Research Group Law and Finance

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

Research Interests

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

Stefano Colonnello joined the institute as a Research Affiliate in March 2020. His research focuses on law and finance, empirical corporate finance, corporate governance, and financial institutions.

Stefano Colonnello earned his master's degree from Bocconi University in Milan and a PhD from École Polytechnique Fédérale de Lausanne & the Swiss Finance Institute. He was a member of the Department of Financial Markets at IWH and Assistant Professor of Financial Economics at Otto von Guericke University Magdeburg from 2015 to 2019.

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Professor Stefano Colonnello, PhD
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Publications

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CEO Investment of Deferred Compensation Plans and Firm Performance

Domenico Rocco Cambrea Stefano Colonnello Giuliano Curatola Giulia Fantini

in: Journal of Business Finance & Accounting, forthcoming

Abstract

We study how US chief executive officers (CEOs) invest their deferred compensation plans depending on the firm's profitability. By looking at the correlation between the CEO's return on these plans and the firm's stock return, we show that deferred compensation is to a large extent invested in the company equity in good times and divested from it in bad times. The divestment from company equity in bad times arguably reflects CEOs' incentive to abandon the firm and to invest in alternative instruments to preserve the value of their deferred compensation plans. This result suggests that the incentive alignment effects of deferred compensation crucially depend on the firm's health status.

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Executive Compensation and Labor Expenses

Stefano Colonnello

in: B.E. Journal of Economic Analysis & Policy, forthcoming

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Shareholder Bargaining Power and the Emergence of Empty Creditors

Stefano Colonnello M. Efing F. Zucchi

in: Journal of Financial Economics, No. 2, 2019

Abstract

Credit default swaps (CDSs) can create empty creditors who potentially force borrowers into inefficient bankruptcy but also reduce shareholders’ incentives to default strategically. We show theoretically and empirically that the presence and the effects of empty creditors on firm outcomes depend on the distribution of bargaining power among claimholders. If creditors would face powerful shareholders in debt renegotiation, firms are more likely to face the empty creditor problem. The empirical evidence confirms that more CDS insurance is written on firms with strong shareholders and that CDSs increase the bankruptcy risk of these same firms. The ensuing effect on firm value is negative.

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Working Papers

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Benign Neglect of Covenant Violations: Blissful Banking or Ignorant Monitoring?

Stefano Colonnello Michael Koetter Moritz Stieglitz

in: IWH Discussion Papers, No. 3, 2019

Abstract

Theoretically, bank‘s loan monitoring activity hinges critically on its capitalisation. To proxy for monitoring intensity, we use changes in borrowers‘ investment following loan covenant violations, when creditors can intervene in the governance of the firm. Exploiting granular bank-firm relationships observed in the syndicated loan market, we document substantial heterogeneity in monitoring across banks and through time. Better capitalised banks are more lenient monitors that intervene less with covenant violators. Importantly, this hands-off approach is associated with improved borrowers‘ performance. Beyond enhancing financial resilience, regulation that requires banks to hold more capital may thus also mitigate the tightening of credit terms when firms experience shocks.

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Effectiveness and (In)Efficiencies of Compensation Regulation: Evidence from the EU Banker Bonus Cap

Stefano Colonnello Michael Koetter Konstantin Wagner

in: IWH Discussion Papers, No. 7, 2018

Abstract

We study if the regulation of bank executive compensation has unintended consequences. Based on novel data on CEO and non-CEO executives in EU banking, we show that capping the variable-to-fixed compensation ratio did not induce executives to abandon the industry. Banks indemnified executives sufficiently for the shock to retain them by raising fixed and lowering variable compensation while complying with the cap. At the same time, banks‘ risk-adjusted performance deteriorated due to increased idiosyncratic risk. Collateral damage for the financial system as a whole appears modest though, as average co-movement of banks with the market declined under the cap.

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Internal Governance and Creditor Governance: Evidence from Credit Default Swaps

Stefano Colonnello

in: IWH Discussion Papers, No. 6, 2017

Abstract

I study the relation between internal governance and creditor governance. A deterioration in creditor governance may increase the agency costs of debt and managerial opportunism at the expense of shareholders. I exploit the introduction of credit default swaps (CDS) as a negative shock to creditor governance. I provide evidence consistent with shareholders pushing for a substitution effect between internal governance and creditor governance. Following CDS introduction, CDS firms reduce managerial risk-taking incentives relative to other firms. At the same time, after the start of CDS trading, CDS firms increase managerial wealth-performance sensitivity, board independence, and CEO turnover performance-sensitivity relative to other firms.

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