Governing Fintech: Evidence from Female Directors in Italian Banks

Bank-specific corporate governance research has revealed that optimal design of bank governance and bank regulation, implies the convergence of objectives of bank shareholders, depositors, and society-at large. Financial institutions are more likely to hold greater liability risk and to be much more accountable to their stakeholders and banking regulators. Empirical evidence reports a link between the structure and features of boards of directors and the performance of banks. In particular, past research has demonstrated that a bigger board improves the efficacy of monitoring and control operations, allowing for improved risk management decision-making. More recently, the debate on the complexity of corporate governance principles for banks has been enriched with the issue related to gender diversity. The topic of gender diversity in banks relates to the broader debate in corporate governance research over the effects of women on the firm calling the need to expand the presence of women in the governance bodies. At the same time, as the banking industry adapts to Industry 4.0’, the complexity of the bank corporate governance principles increases and the authorities urge banks to take all necessary steps to create a more equal composition of their boards of directors and management structures. Anecdotal evidence suggests that FinTech firms have problems in the compliance with corporate governance code and have been charged with financial frauds (e.g., Revolut corp). FinTech’s is an essential expression of financial sector innovation, and it is having a significant influence on the banking industry. It has reduced trhariaction costs and mitigated the information asymmetry problem caused by distance restrictions. On the one hand, FinTech development helps banks grow their operations, which in turn likely enhances bank performance. On the other hand, FinTech development may wreak havoc on bank performance, as internet lending and investing platforms eat into their profits. Despite the fast move in the current bank practices, there is a lack of evidence to establish a univocal relationship between FinTech, competitiveness, and performance in the banking industry and our understanding of the factors driving FinTech impacts is quite limited. Moving from these arguments, this research examines the effect of FinTech on Italian banks’ performance, taking into account the monitoring role of female directors. Relying on the agency perspective of shareholder, debtholder and societal governance in banks we hypothesize that a diverse composition of governance bodies positively moderates the relationship between FinTech and bank performance. To this aim, we rely on a sample of Italian banks observed during the period 2016-2020 and measure FinTech using the collaborations between banks and FinTech companies and a combined index of FinTech services offered by the bank. Then we run fixed-effects regression models. We find that board gender diversity led to an effective provision of FinTech in-house solutions with positive implications on the bank performance while it does not affect the effectiveness of the collaboration with Fintech. This study makes several contributions to theory and practice. First, it puts the research on gender diversity in governance forward by spotlighting the role of women directors in the provision of effective new business models that boost bank performance.