Journal of Financial Management, Markets and Institutions

The increasing attention to sustainability issues in finance has brought a proliferation of environmental, social, and governance (ESG) metrics and rating providers that results in divergences among the ESG ratings. Based on a sample of Italian listed firms, this paper investigates these divergences through a framework that decomposes ESG ratings into a value and a weight component at the pillar (i.e. E, S, and G) and category (i.e. sub-pillar) levels. We find that weights divergence and social and governance indicators are the main drivers of rating divergences. The research contributes to develop a new tool for analyzing ESG divergences and provides a number of recommendations for researchers and practitioners, stressing the need to understand what is really measured by the ESG rating agencies and the need for standardization and transparency of ESG measurement to favor a more homogeneous set of indicators.

The internationalization of the portfolio company is a key strategy used by private equity (PE) investors to create value and produce returns. In recent years, the focus on the strategies for value-creation through operational improvement has become essential to achieve the exponential growth required to the portfolio company, given the low multiples and the market risk of leverage. In this paper, we define the key types of contribution that a PE investor can provide in order to support the internationalization process and their effects on the portfolio company’s performance. The research is based on a survey administered to 47 PE fund managers, which covers 156 deals involving Italian companies. The results offer insight into the contribution to the corporate governance, strategy and management that PE provides in addition to the monetary support. The findings show that the non-financial support given to the portfolio companies has a positive impact on the performance and that the most impactful contribution the PE can give is the support to the relational network when the company strategy involves a foreign direct investment.

This study examines the effects of corruption and political instability and violence on the financial sector development. We estimate the impact for a panel of countries classified by income groups and regulatory quality. The study considers the period from 1996 to 2015 for analysis. The empirical models of this study test the linear as well as nonlinear relationships between corruption and financial sector development. Our analysis utilizes a dynamic panel data model and takes care of the potential endogeneity problem in estimation. The results show that corruption has a negative effect on financial sector development for all as well as different income-group countries. Our results further show that the effects of corruption are nonlinear in nature and indicate that corruption is more financial development-reducing when its level is very high. We also test the joint effect of corruption and political instability and violence on financial development. It largely shows that their combined effect is positive, implying that widespread corruption can positively affect financial development if a country is suffering from an unstable political institution.

Central bank’s macroprudential supervisory activities have to fulfill three distinct tasks: (i) assessing the banking system’s vulnerability to exogenous adverse turbulence, (ii) evaluating the risk of systemic crisis originating from idiosyncratic shocks, and (iii) measuring financial market’s sensitivity to policy stimuli. Given that macroprudential stress tests are the centerpiece of this policy approach, it is important to establish whether they are up to the task. We study how the 2011–2018 European Banking Authority stress tests affected market risk perception and show that they provided agents with valuable information on the policy stances and the vulnerabilities of the banking system, carrying out the above tasks successfully, especially the second and third tasks.

Based on daily data from Thomson Reuter’s Refinitiv, we investigate the effect of information and communication technology (ICT) on the profitability and risk of the European banking industry during the COVID-19 pandemic. Specifically, we empirically examine whether and how ICT diffusion affects banks’ stock return, credit default swaps (CDS) spreads and market volatility over the period spanning from January 1, 2020, to March 31, 2020. Our evidence demonstrates that ICT improves banks’ performance measures and reduces risks. These effects are more significant in the post-COVID-19 period.