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Discussion Paper Details

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Title: Interlocking Directorates and Competition in Banking

Author(s): Guglielmo Barone, Fabiano Schivardi and Enrico Sette

Publication Date: April 2020

Keyword(s): Banking, Competition and Interlocking directorates

Programme Area(s): Financial Economics and Industrial Organization

Abstract: We study the effects on loan rates of a quasi-experimental change in the Italian legislation which forbids interlocking directorates between banks. We use a difference-in-differences approach and exploit multiple banking relationships to control for unobserved heterogeneity. We find that the reform decreased rates charged by previously interlocked banks to common customers by between 10-30 basis points. The effect is stronger if the firm had a weaker bargaining power vis-a-vis the interlocked banks. Consistent with the assumption that interlocking directorates facilitate collusion, interest rates on loans from interlocked banks become more dispersed after the reform.

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Bibliographic Reference

Barone, G, Schivardi, F and Sette, E. 2020. 'Interlocking Directorates and Competition in Banking'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14654