Opinions expressed in this paper are exclusively the authors' and do not necessarily reflect those of CONSOB. We thank Magda Bianco, Luca Enriques, Silvia Giacomelli, Giovanni Siciliano, and the participants in the Wolpertinger Conference on Banking and Finance (Roma Tre University, Rome, 3–5 September 2009) and in the European Law and Economics Meeting (LUISS Guido Carli University, Rome, 17–19 September 2009).
Comply or Explain: Investor Protection Through the Italian Corporate Governance Code
Article first published online: 18 MAR 2011
Copyright © 2011 Morgan Stanley
Journal of Applied Corporate Finance
Volume 23, Issue 1, pages 107–121, Winter 2011
How to Cite
Bianchi, M., Ciavarella, A., Novembre, V., Signoretti, R. and CONSOB (2011), Comply or Explain: Investor Protection Through the Italian Corporate Governance Code. Journal of Applied Corporate Finance, 23: 107–121. doi: 10.1111/j.1745-6622.2011.00319.x
- Issue published online: 18 MAR 2011
- Article first published online: 18 MAR 2011
Nearly 86% of listed Italian companies now claim to be in formal compliance with the provisions of the Italian Corporate Governance Code, which, like many codes in EU countries, give companies the option to either comply or explain their decision not to do so. But in the wake of the recent financial crisis, the effectiveness of such self-regulatory corporate governance codes has been subjected to increasing skepticism. In particular, critics wonder whether such governance codes actually encourage the adoption of best practices and promote better governance.
This article presents a governance indicator (CoRe) devised by the authors that attempts to assess the actual, or effective, levels of compliance with the Italian Corporate Governance Code in terms of listed companies' procedures for dealing with related party transactions (RPTs). The authors report that the companies' level of effective compliance with regard to RPTs is considerably lower than their publicly reported levels of formal compliance. The authors also report that higher levels of effective compliance tend to be found in companies where (1) minority shareholders have appointed one or more directors; (2) independent directors serve on important committees; and (3) there are significant holdings by institutional investors—particularly foreign investors—who participate in general shareholder meetings.