Selected paper
Carlini F., Farina, V., Gufler, I., Previtali, D. (2024). Do stress and overstatement in the news affect the stock market? Evidence from COVID-19 news in The Wall Street Journal. International Review of Financial Analysis, 93, 10378. https://doi.org/10.1016/j.irfa.2024.103178
This study investigated the effect of media coverage on financial markets in response to COVID-19-related news. By collecting data from the United States Centers for Disease Control and Prevention, we study the effect of The Wall Street Journal's coverage and tone on stock markets. In particular, we attempted to measure media overstatements by comparing the number of articles and stress words with the number of COVID-19 cases. We obtained three main findings. First, investors discount macroeconomic news and objective measures of COVID-19. Second, excessive stress in the media tone leads to greater uncertainty and lower returns. Third, these results hold across sectors, although heterogeneity exists. Overall, long periods of high-stress sentiment and uncertainty affect investors more than single-day news.
Del Gaudio, B.L., Gallo, S., Previtali, D. (2024). Exploring the drivers of investment in Fintech: Board composition and home bias in banking. Global Finance Journal, 60, 100944 https://doi.org/10.1016/j.gfj.2024.100944
This paper explores the determinants of banks' investment in fintech innovation, deepening the role of the board of directors and country home bias. Using board data of the listed banks in the US, EU and UK and fintech companies' investment rounds, we create the home bias variable by measuring the distance in kilometres separating the bank and fintech's headquarters. We find two main results. First, boards with higher female presence, higher members' network and younger directors are more likely to invest in fintech companies. Second, banks tend to invest in fintech companies that are geographically closer to them, showing the existence of the home bias in the fintech innovation investment. Overall, the paper suggests that bank board structure and geographic position of target companies are relevant factors of fintech investments.
Bellardini, L., Murro, P., Previtali, D. (2024). Measuring the risk appetite of bank-controlling shareholders: The Risk-Weighted Ownership index. Global Finance Journal, 60, 100935 - https://doi.org/10.1016/j.gfj.2024.100935
This study proposes a measure of the risk appetite of a bank's ownership structure and investigates whether ownership risk propensity is related to performance and default risk. Our indicator, the Risk-Weighted Ownership (RWO), assumes that credit risk is a proxy for shareholders' risk appetite and assigns risk weights based on the Basel standard approach to the stakes held by the top 5, 10, and 20 controlling shareholders. We calculate the RWO index using a sample of 76 listed banks from the Eurozone and the United Kingdom from 2008 to 2017. The RWO correlates with bank fundamentals when we regress it with accounting- and market-based performance and risk measures. We present two major findings. First, the RWO index incorporates the risk appetite of controlling shareholders, and its variance is affected by the ownership structure. Second, a higher risk appetite among shareholders is associated with higher profitability but lower bank capitalization, implying a trade-off between performance and default risk. Overall, we find that the risk appetite of the ownership structure is an important driver of bank performance and risk.
Del Gaudio, B.L., Previtali, D., Sampagnaro, G., Verdoliva, V., Vigne, S., (2022) Syndicated green lending and lead bank performance, Journal of International Financial Management & Accounting, 1-16 - https://doi.org/10.1111/jifm.12151
This study investigates the effect of the green lending propensity of banks on profitability and risk. Using a sample of 217 green facilities financing syndication worldwide, we create a variable of green lending approach measuring the weight of green loans on total credit exposure of the lead bank and investigate the effect of the green propensity so as the structure of syndication on bank accounting performance. We find two relevant findings. First, a higher propensity to green lending is associated with lower profitability, more moderate default risk, and lower credit risk than banks with a less green investment approach. Second, more collateralization and duration of green lending increase bank performance, while the larger syndicate size reduces profitability and risk. Overall, our study suggests that banks are prone to invest in green projects, but the risks may offset profitability requiring public support to empower the role of the banking sector in boosting ecological transition.
Bellardini L., Del Gaudio B.L., Previtali D., Verdoliva V. (2022) How do banks invest in fintechs? Evidence from advanced economies, Journal of International Financial Markets, Institutions & Money, 101498 - https://doi.org/10.1016/j.intfin.2021.101498
Using data on a sample of 803 investment rounds in fintech companies (FTCs) held between 2008 and 2018 at the global level, where each company received investment from at least one financial institution, we investigate how banks react to digital transformation through the direct investment channel. Each round is treated as an independent event; hence, we examine 1,078 bank-FTC observations. Employing OLS regressions, we explore the determinants of deal size, both in absolute (i.e., monetary flows) and relative terms (i.e., the proportion of the total funding that the target has cumulatively received). Conversely, with probit analysis, we investigate the determinants of banks’ choices to invest in “fin-native” vs. “tech-native” FTCs and those of their decisions to use equity (i.e., capital injections) vs. debt (i.e., credit lines). We find that investments are enhanced by an FTC’s specialisation in financial rather than technological services, by the presence of other investors, and — to some extent — when the target is in a later stage of development and the bank is large. Additionally, the nature of a target depends largely (but not exclusively) on the corresponding bank’s risk-return profile, as fin-native companies and debt financing are perceived as safer than tech-native companies and equity financing, respectively. Finally, we find that a limited but non-negligible role is played by the regulatory framework, which mainly affects the choice of financing tool by prompting banks to choose equity — i.e., a bolder risk-return profile — when they face harsher competition from unlicensed lenders.
Carlini F.C.E., Del Gaudio B. L., Porzio C., Previtali D. (2021) Banks, FinTech and stock returns, Finance Research Letters, 102252 - https://doi.org/10.1016/j.frl.2021.102252
This paper investigates the effect of banks' investment in FinTech firms (FTF) on stock returns. We hand-collect data on 581 investment rounds made by FTFs, within at least one European or North American bank acting as investor. Our results show that banks’ investment in fintech affect stock markets. The abnormal reaction is negative, larger for young and technology-oriented firms, and stronger in the case of multiple investments. Bank size, leverage and profitability do not moderate abnormal returns. Overall, our study suggests that bank equity investment in FTFs is an important determinant of abnormal stock returns.
Carlini F.C.E., Cucinelli D., Previtali D., Soana, M. G. (2020) Don't talk too bad! Stock market reactions to bank corporate governance news, Journal of Banking & Finance, 105962 - https://doi.org/10.1016/j.jbankfin.2020.105962
This paper investigates the effect of media talk on bank stock returns in response to corporate governance news. Using Loughran and McDonald's (2011) dictionary, we create four categories of word lists that define the positive/negative tone and degree of certainty/uncertainty of news. We document three relevant findings. First, negative news significantly affects bank stock returns. Second, media coverage and the degree of certainty of the news are associated with more severe stock market losses. Third, bank capital and risk-adjusted performance mitigate the effect of negative news on stock prices. Overall, our study suggests that media talk on bank corporate governance events is an important determinant of abnormal stock returns.
Beltrame F., Caselli S., Previtali D. (2018) Leverage, cost of capital and bank valuation, Journal of Financial Management, Markets and Institutions, Vol. 6(1), pp. 1-24 - https://doi.org/10.1142/S2591768418500046
In this paper, we present a model that demonstrates the effect of debt on cost of capital and value in the case of banking firms. Using a static partial equilibrium setting, both in a steady state and steady growth scenario, we derive a bank-specific valuation metric which separately attributes value to assets and debt cash flows in the form of a liquidity premium and tax-shield. We run our model on a sample of the largest 26 European banks from 2003 to 2016 finding that the value contribution of debt benefits to enterprise value is large and persistent. Further from our model, we derived an implied cost of capital (ICC) measure finding consistent results with capital asset pricing model (CAPM). The theoretical framework we present is helpful to address bank debt benefits valuation and to reconcile equity and asset side approaches.
Beltrame F., Previtali D., Sclip A., (2018) Systematic risk and banks leverage: the role of asset quality, Finance Research Letters, pp.113-117 - https://doi.org/10.1016/j.frl.2018.02.015
We analyse how bank asset quality interacts within the relationship between leverage and systematic risk. We elaborate three leverage adjustments for sterilizing the effect of provisioning and incorporating the effect of non-performing loans and total credit risk exposure. We test the model on a sample of 97 European banks from 2005 and 2016. Controlling for size, findings show the relevance of a combined effect of leverage and asset quality as a systematic risk component. NPLs are found to be one significant variable of market risk. Results demonstrate that simple leverage is pointless for verifying the financial riskiness of banks.
Selected books
Comana M., Previtali D., Bellardini L. (2019) The MiFID II Framework - How the New Standards Are Reshaping the Investment Industry, Springer - https://doi.org/10.1007/978-3-030-12504-2
This book provides a detailed analysis of the main innovations and impacts associated with the package of European legislation comprising MiFID II and MiFIR, which constitutes a pillar of the EU’s “single rulebook” for financial regulation. Adopting a research-oriented approach, the authors also consider the practical consequences of the new legislation, to provide a clear description of the new rules and the ways in which they address concerns raised by the financial crisis, as well as an appraisal of the theoretical implications from an EU-wide perspective. The book also presents a comparative analysis of how the package is being implemented within the larger countries of the Eurozone and the United Kingdom, and evaluates the likely consequences for banks’ business models. This research book is a valuable resource for graduate and master’s level students as well as professionals and practitioners interested in understanding the European financial law and, in particular, the dynamics of the investment industry.
Beltrame F., Previtali D. (2016) Valuing banks: a new corporate finance approach, Palgrave Macmillan Studies in Banking and Financial Institutions (SBFI) - https://doi.org/10.1057/978-1-137-56142-8
This book aims to overcome the limitations the variations in bank-specifics impose by providing a bank-specific valuation theoretical framework and a new asset-side model. The book includes also a constructive comparison of equity and asset side methods. The authors present a novel framework entitled, the “Asset Mark-down Model”. This method incorporates an Adjusted Present Value model, which allows practitioners to identify the main value creation sources of a particular bank: from asset-based cash flow and the mark-down on deposits, to tax benefits on bearing liabilities. Through the implementation of this framework, the authors offer a more accurate and more specific approach to valuing banks.