THE ITALIAN BANKING FOUNDATIONS DURING THE FINANCIAL CRISIS: SOME THOUGHTS ON CORPORATE GOVERNANCE AND ACCOUNTING ISSUES

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Abstract

Banking Foundations are both non-profit entities and key investors in Italian banks. Since the beginning of the 1990s, they have supported their banking concerns, receiving in exchange growing dividends used to finance their granting activity. However, the recent financial crisis has severely questioned this symbiotic relationship. Due to the high concentration of their resources in the equity capital of the Italian banks, Foundations have dramatically suffered the ongoing market downturn, cutting their grants by 50% in 2011, with negative consequences on the welfare of the local communities in which they operate. The poor attention traditionally showed by Banking Foundations on the adoption of risk diversification techniques is probably due to the existence of weak corporate governance mechanisms and to the lack of transparency characterizing their financial reports. Indeed, the adoption of accounting criteria exclusively based on historical data hampers the comparability of the financial information and allows income-smoothing techniques that threaten the stewardship function of the financial documents. Therefore, this paper proposes the introduction of a mark-to-market disclosure in the Banking Foundations’ financial statements, stressing the fundamental role that financial information based on current values can play in improving the accountability process and, consequently, in increasing the efficiency and the effectiveness of the investment strategies.

Keywords: Banking Foundations, Financial Crisis, Institutional Investors, Historical Cost Accounting, Mark-to-Market Accounting, Stewardship Function

How to cite this paper: Moscariello, N. (2012). The Italian banking foundations during the financial crisis: Some thoughts on corporate governance and accounting issues. Corporate Ownership & Control, 10(1-5), 547-556. https://doi.org/10.22495/cocv10i1c5art6