The Beauty of Being Involved: The Case of Cooperative Banks

Abstract

Is greater stakeholder engagement associated with greater stability? We provide readers with novel empirical evidence that this is indeed the case. Cooperative banks (where stakeholders are involved in the business by law) are an excellent case to study the association between stakeholder engagement and stability. Focusing on Italy, we show that cooperative banks differ substantially in risk-taking from each other, and these differences are mostly related to the engagement of stakeholders. A greater overlap between shareholders, borrowers and depositors is associated with lower non-performing loans, suggesting that greater stakeholder engagement reduces problems of asymmetric information and bank risk appetite.