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 9/15

Head of the Research Group Law and Finance

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

since 11/19

Assistant Professor

Ca' Foscari University of Venice, Italy

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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Publications

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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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Benign Neglect of Covenant Violations: Blissful Banking or Ignorant Monitoring

Stefano Colonnello Michael Koetter Moritz Stieglitz

in: Economic Inquiry, No. 1, 2021

Abstract

Theoretically, bank's loan monitoring activity hinges critically on its capitalization. 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 capitalized 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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Working Papers

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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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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 investigate the (unintended) effects of bank executive compensation regulation. Capping the share of variable compensation spurred average turnover rates driven by CEOs at poorly performing banks. Other than that, banks‘ responses to raise fixed compensation sufficed to retain the vast majority of non-CEO executives and those at well performing banks. We fail to find evidence that banks with executives that are more affected by the bonus cap became less risky. In fact, numerous results indicate an increase of risk, even in its systemic dimension according to selected measures. The return component of bank performance appears to be unaffected by the bonus cap. Risk hikes are consistent with an insurance effect associated with raised the increase in fixed compensation of executives. The ability of the policy to enhance financial stability is therefore doubtful.

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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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