IDEAS home Printed from https://ideas.repec.org/p/wpa/wuwpfi/0512026.html
   My bibliography  Save this paper

How Independent are Independent Directors? The Case of Italy

Author

Listed:
  • Paolo Santella

    (European Commission, DG Internal Market)

  • Giulia Paone

    (Dartmouth College - Tuck School of Business)

  • Carlo Drago

    (University of Naples 'Federico II')

Abstract

In this article, we provide an interpretation for the voluntary independence requirements contained in the Italian Corporate Governance Code (Preda Code) checking them against a proxy for international best practice, the independence criteria provided in the EC Recommendation on non-executive and supervisory directors of 2005. We then check to what extent company disclosure for 2003 allows the verification of the independence of directors qualified as independent by the Italian 40 blue chips. We find that the Preda Code (currently under revision) should be updated in several respects in order to make it abreast with best practice in the European Union. We also find that for two key independence requirements (not to have business relationships with the company and not to have too many concurrent commitments outside of the company) the level of compliance is dramatically low (4% and 16% respectively). Overall, for only 5 out of the 284 directors declared as independent by the Italian blue chips is it possible to verify the respect of all the Italian independence standards (and for only 4 directors with respect to the EC standards). This raises the problem of who should monitor what listed companies declare.

Suggested Citation

  • Paolo Santella & Giulia Paone & Carlo Drago, 2005. "How Independent are Independent Directors? The Case of Italy," Finance 0512026, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpfi:0512026
    Note: Type of Document - pdf; pages: 34
    as

    Download full text from publisher

    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/fin/papers/0512/0512026.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. repec:hrv:faseco:30728046 is not listed on IDEAS
    2. Luigi Zingales, 1995. "What Determines the Value of Corporate Votes?," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 1047-1073.
    3. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    4. Zingales, Luigi, 1994. "The Value of the Voting Right: A Study of the Milan Stock Exchange Experience," Review of Financial Studies, Society for Financial Studies, vol. 7(1), pages 125-148.
    5. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    6. Hermalin, Benjamin E & Weisbach, Michael S, 1998. "Endogenously Chosen Boards of Directors and Their Monitoring of the CEO," American Economic Review, American Economic Association, vol. 88(1), pages 96-118, March.
    7. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    8. Lucian Arye Bebchuk, 1999. "A Rent-Protection Theory of Corporate Ownership and Control," NBER Working Papers 7203, National Bureau of Economic Research, Inc.
    9. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
    10. DeAngelo, Harry & DeAngelo, Linda, 2000. "Controlling stockholders and the disciplinary role of corporate payout policy: a study of the Times Mirror Company," Journal of Financial Economics, Elsevier, vol. 56(2), pages 153-207, May.
    11. Lease, Ronald C. & McConnell, John J. & Mikkelson, Wayne H., 1983. "The market value of control in publicly-traded corporations," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 439-471, April.
    12. Paul W. MacAvoy & Ira M. Millstein, 1999. "The Active Board Of Directors And Its Effect On The Performance Of The Large Publicly Traded Corporation," Journal of Applied Corporate Finance, Morgan Stanley, vol. 11(4), pages 8-20.
    13. Nenova, Tatiana, 2003. "The value of corporate voting rights and control: A cross-country analysis," Journal of Financial Economics, Elsevier, vol. 68(3), pages 325-351, June.
    14. Byrd, John W. & Hickman, Kent A., 1992. "Do outside directors monitor managers? *1: Evidence from tender offer bids," Journal of Financial Economics, Elsevier, vol. 32(2), pages 195-221, October.
    15. Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 81-112.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Crespí-Cladera, Rafel & Pascual-Fuster, Bartolomé, 2014. "Does the independence of independent directors matter?," Journal of Corporate Finance, Elsevier, vol. 28(C), pages 116-134.
    2. Carlos Drago & Francesco Millo & Roberto Ricciuti & Paolo Santella, 2011. "Corporate Governance Reforms, Interlocking Directorship Networks and Company Value in Italy (1998-2007)," CESifo Working Paper Series 3322, CESifo Group Munich.
    3. Timothy A. Kruse, 2007. "Minority Expropriation and Shareholder Activism Following Olivetti's Hostile Takeover of Telecom Italia," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(2), pages 133-143, March.
    4. Fernandes, Nuno, 2008. "EC: Board compensation and firm performance: The role of "independent" board members," Journal of Multinational Financial Management, Elsevier, vol. 18(1), pages 30-44, February.

    More about this item

    Keywords

    Independent directors; Corporate governance;

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • K - Law and Economics
    • K2 - Law and Economics - - Regulation and Business Law
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpfi:0512026. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA). General contact details of provider: https://econwpa.ub.uni-muenchen.de .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.