On the effectiveness of supervisory enforcement actions: How do banks boards react?

We study the impact of supervisory enforcement actions on bank board of directors' characteristics. Based on a unique sample of sanctions dispensed by the Supervisory Banking Authority during the period 2006-2012 on Italian banks, we find that a sanctioned bank changes the board composition following a Supervisory sanction. We further test whether these changes are beneficial for the bank and find that they reduce the probability of being sanctioned again, under certain conditions. Robustness tests confirm the results. Overall, our results confirm the role of enforcement actions by Supervisory Banking Authority in inducing banks to adopt a better governance model