Prof. Annalisa Prencipe will deliver a seminar on her paper coauthored with M.N. Ivanova and M. Tylaite.
The global financial crisis of 2007 – 2008 is commonly attributed to excessive risk-taking caused at least in part by corporate governance weaknesses in the financial system. The failure of existing controls to prevent unwarranted risk-taking prompted regulators to impose personal sanctions on board members for breaches of the banking legislation. Yet, there is little evidence on the effectiveness of such reforms.
This paper aims to fill this gap by examining the effects of increasing directors’ personal liability on the risk-taking of private financial institutions. We utilize a 2015 regulatory reform in Sweden that imposed a penalty of up to five million euro on directors of financial institutions for regulatory violations, thus effectively increasing their personal liability.
We find evidence of lower earnings and cash-flow volatility, higher distance to default, lower probability of experiencing a big loss, and higher probability of a credit rating upgrade following the reform, suggesting that more director liability equates to less risk-taking. Such effects could be driven by the incumbent directors becoming more vigilant or the new directors joining after the reform.
Path analysis indicates that the reduction in risk-taking is predominantly driven by incumbent directors becoming more prudent, whereas the new director types explain the observed changes in risk-taking to a lesser extent. Notably, the increase of female members on the boards of affected firms contributes to lower risk-taking, while the lower percentage of experienced board members increases risk. Overall, our findings indicate that director liability provisions affect the risk-taking in private financial institutions.
Annalisa is Full Professor and holds the KPMG Chair in Accounting. She is also a member of the Bocconi University Board.
She held the role of President of the European Accounting Association (2,000+ members) from 2021 to 2023. Over the period 2016-2022, she was the Dean of the Bocconi Undergraduate School. She earned a PhD in Business Administration and Management from Bocconi University.
During her doctoral studies, she was a visiting student at Harvard Business School. She conducted research for the NYSE and was a visiting scholar at the Hebrew University of Jerusalem.
Her research has been published in leading journals, including Management Science and the European Accounting Review. She is/was a member of the editorial board of several international accounting journals, such as the European Accounting Review, Journal of Accounting Auditing and Finance, Accounting in Europe, and Accounting and Business Research. She was awarded the Donato Menichella Prize in 2018 and the title of Ensign of Labor by the President of the Italian Republic. In 2020, she received the Bocconi Impact of Research Award. She has received the Teaching Excellence Award several times over the last few years.
Her research interests include financial reporting, sustainability reporting, voluntary and mandatory disclosure, corporate governance, international accounting standards, auditing, family firms, and private firms.
The seminar will be held in English.
Major information: Eleonora Monaco (e.monaco@unibo.it).