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.

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

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Shareholder Bargaining Power and the Emergence of Empty Creditors

Stefano Colonnello M. Efing F. Zucchi

in: Journal of Financial Economics, forthcoming

Abstract

Credit default swaps (CDSs) can create empty creditors who may push 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. Firms are more likely to have empty creditors if these would face powerful shareholders in debt renegotiation. 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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Direct and Indirect Risk-taking Incentives of Inside Debt

Stefano Colonnello Giuliano Curatola Ngoc Giang Hoang

in: Journal of Corporate Finance, August 2017

Abstract

We develop a model of compensation structure and asset risk choice, where a risk-averse manager is compensated with salary, equity and inside debt. We seek to understand the joint implications of this compensation package for managerial risk-taking incentives and credit spreads. We show that the size and seniority of inside debt not only are crucial for the relation between inside debt and credit spreads but also play an important role in shaping the relation between equity compensation and credit spreads. Using a sample of U.S. public firms with traded credit default swap contracts, we provide evidence supportive of the model's predictions.

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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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Pricing Sin Stocks: Ethical Preference vs. Risk Aversion

Stefano Colonnello Giuliano Curatola Alessandro Gioffré

in: IWH Discussion Papers, No. 20, 2017

Abstract

We develop a model that reproduces the return and volatility spread between sin and non-sin stocks, where investors trade off dividends with the ethical assessment of companies. We relax the assumption of boycott behaviour and investigate the role played by the dividend share of sin stocks on their return and volatility spread relative to non-sin stocks. We empirically show that the dividend share predicts a positive return and volatility spread. This pattern is reproduced by our model when dividends and ethicalness are complementary goods and investors are sufficiently risk averse.

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