Governance, Diversification and Performance: The Case of Italy’s Banche Popolari

The paper has two objectives both pertaining to the specific corporate governance model of Italy’s Banche Popolari. First, we aim to disentangle to what extent the observed lower profit volatility for such class of cooperative banks – vis-à-vis other joint stock banks – depends on their lower revenue diversification and/or on their governance setup. Specifically, less diversified banks – i.e., those relying less on noninterest income – tend to enjoy greater profit stability. While exhibiting lower revenue diversification, Banche Popolari groups also show an additional feature possibly conducive to lower profit volatility, namely they have more stable boards of directors, thereby focusing on longer-term business horizons. To test the relative explanatory power of these two hypotheses, we use data referring to the mid-1990s, before a big wave of consolidations that changed the Italian banking landscape. Secondly, we investigate more up to date evolutions across the Banche Popolari groups. In recent years, some of these banks grew quite rapidly, while others were less dynamic. Growth of the former banks generally materialized via expanded holding group structures controlling several acquired banks, where the target banks featured both other Banche Popolari as well as some join