Professor Stefano Colonnello, PhD

Professor Stefano Colonnello, PhD
Current Position

since 9/15

Head of the Research Group Law and Finance

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

since 9/15

Assistant Professor

Otto von Guericke University Magdeburg

Research Interests

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

Stefano Colonnello is a member of the Department of Financial Markets at IWH as well as Assistant Professor of Financial Economics at Otto von Guericke University Magdeburg since September 2015. 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 and the Swiss Finance Institute.

Your contact

Professor Stefano Colonnello, PhD
Professor Stefano Colonnello, PhD
Mitglied - Department Financial Markets
Send Message +49 345 7753-773 Personal page

Publications

cover_journal-of-business-finance-_-accounting.png

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.

read publication

cover_journal-of-financial-economics.png

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.

read publication

cover_european-economic-review.jpeg

Pricing Sin Stocks: Ethical Preference vs. Risk Aversion

Stefano Colonnello Giuliano Curatola Alessandro Gioffré

in: European Economic Review, 2019

Abstract

We develop an ethical preference-based model that reproduces the average return and volatility spread between sin and non-sin stocks. Our investors do not necessarily boycott sin companies. Rather, they are open to invest in any company while trading off dividends against ethicalness. When dividends and ethicalness are complementary goods and investors are sufficiently risk averse, the model predicts that the dividend share of sin companies exhibits a positive relation with the future return and volatility spreads. An empirical analysis supports the model’s predictions. Taken together, our results point to the importance of ethical preferences for investors’ portfolio choices and asset prices.

read publication

Working Papers

cover_DP_2019-03.jpg

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.

read publication

cover_DP_2018-07.jpg

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.

read publication

cover_DP_2017-6.jpg

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.

read publication
Mitglied der Leibniz-Gemeinschaft LogoTotal-Equality-LogoWeltoffen Logo