Political Influence and the Performance of Nonprofit Spanish Banks

• Date: 01 June 2016
• Author: Vicente Pina,Patricia Bachiller,Lourdes Torres
• DOI: http://doi.org/10.1002/nml.21205
• Published date: 01 June 2016

471

N M  L, vol. 26, no. 4, Summer 2016 © 2016 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/nml.21205

Journal sponsored by the Jack, Joseph and Morton Mandel School of Applied Social Sciences, Case Western Reserve University.

Political Infl uence and the Performance

of Nonprofi t Spanish Banks

Vicente Pina , 1 Lourdes Torres ,1 Patricia Bachiller 1

1 University of Zaragoza

This article presents empirical evidence about factors that influence the solvency of Spanish

savings banks. It also studies whether the presence of politicians in their governance has led

to lower solvency ratios and, consequently, to the current economic situation in the Spanish

banking sector. We use multivariate regressions, taking the solvency ratio as the dependent

variable; and efficiency, the coverage ratio, political influence, CEOs ’ political influence,

size, growth, and age as independent variables. Our results confirm that banking enti-

ties controlled by politicians resulted in poor performance, and political influence on the

boards of savings banks led them to insolvency. The findings show that the non-ownership

structure of savings banks, the lack of best practice corporate governance mechanisms, and

political presence have weakened them.

Keywords: nonprofit banking organizations , governance , efficiency , Spain

FROM THE END OF THE NINETEENTH CENTURY to 2012, Spanish savings banks were non-

profit commercial banks that were private foundations and had two kinds of objectives: finan-

cial and social. The term financial objectives refers to the traditional business of the banking

sector, that is, granting credit and capturing deposits. Social objectives , which other financial

entities do not have, refer to the funding of social welfare programs. The savings banks offered

the same financial services as private banks and, in 2010, made up approximately 50 percent

of the Spanish banking system.

Until 1989, Spanish savings banks operated only in their own geographic regions, where

their head offices and branches were situated. They were not allowed to operate in other

territories. At the end of the 1980s, Spanish savings banks underwent a transformation

process, characterized mainly by deregulation, that allowed them to open branches outside

their regions.

1 Although they were financial entities with commercial goals, they were con-

trolled by regional governments. For decades, regional politicians sought a greater presence

of savings banks in regional development (García-Cestona and Surroca 2008) by using them

as financial tools to compensate for the lack of interest of the private sector in financing

regional projects because of their financial risk.

Correspondence to: Patricia Bachiller, University of Zaragoza, Zaragoza, Spain. E-mail: pbachiller@unizar.es.

 e authors would like to thank four anonymous referees for their comments on an earlier draft of this paper.  is study has been

carried out with the fi nancial support of the Spanish National R + D Plan through the research project ECO2015-66240-P, the Regional

Government of Aragón and the European Social Fund through Research Project S05, and the University of Zaragoza through Research

Project UZ2014-SOC-05.

Nonprofi t Management & Leadership DOI: 10.1002/nml

472 PINA, TORRES, BACHILLER

Previous empirical research has mainly analyzed savings banks from the point of view of pro-

ductivity (Buch, Koch, and Koetter 2011 ; Grifell-Tatje and Lovell 1996 ; Illueca, Pastor, and

Tortosa-Ausina 2009 ; La Porta, Lopez-de-Silanes, and Shleifer 2002 ; Serrano-Cinca, Mar-

Moliero, and Chaparro 2004 ; Tortosa-Ausina et al. 2008 ), costs (Carbo, Gardener, and Wil-

liams 2003 ; Maudos, Pastor, and Perez 2002 ; Prior 2003 ), and efficiency (Cuesta and Orea

2002 ; García-Cestona and Surroca 2006 ; Tortosa-Ausina 2002 ). We studied the governance

of Spanish savings banks because we believe that it may be an explanatory factor of the cur-

rent economic situation in this industry, that is, bankruptcy and the banking rescue process

in Spain with the nationalization of these entities to make them more competitive and sol-

vent. We focused on the political influence of the boards of directors of these organizations.

The relevance of these entities prior to the financial crisis is clear: they gave 55 percent of the

loans and received 49 percent of the deposits of the Spanish banking system (Parejo, García,

and Gámir 2004 ). 2 Political presence in the governance of Spanish savings banks makes the

Spanish financial crisis different from those of other countries (Crespí, García-Cestona, and

Salas 2004 ; Delgado, Salas, and Saurina 2007 ; Fonseca 2005 ).

This article presents empirical evidence about factors that influenced the solvency of Spanish

savings banks and about how the presence of politicians in their governance has led to lower

solvency ratios and, consequently, to the current economic situation in the Spanish banking

sector.

The article is organized as follows. The next section describes the governance of savings

banks. In the third section, we explain the hypotheses. The fourth section details the meth-

odology employed in the study and describes the data and variables used in the analysis. In

the fifth section, we present the empirical results; the sixth section contains the discussion;

and, in the seventh and final section, we conclude.

Literature Review and Context

Most of the savings banks in Spain were created at the end of the nineteenth century by

civil and Catholic associations. They were private foundations with financial and social objec-

tives (social welfare). In the 1930s, they were established as financial entities. With the arrival

of democracy (1975), savings banks strengthened their market position and a national law

put them on the same level as private banks. In the late 1980s, national legislation extended

their operative limits to the entire country by removing geographic barriers and let local and

regional governments hold control in terms of voting rights on the board. Illueca et al. ( 2009 )

found that savings banks that expanded geographically outside their natural markets achieved

greater productivity gains. In contrast, lower increases in productivity were found in savings

banks that continued operating in their traditional markets.

The Spanish banking sector has recently been involved in a process of concentration to cre-

ate bigger and more competitive entities. Spanish savings banks have increased their size and

merged to reduce their number as a consequence of the reform process. The literature about

previous merger processes in Spain has been contradictory. Grifell-Tatje and Lovell ( 1996 )

and Lozano-Vivas ( 1997 ) found no improvements in performance following mergers. By

contrast, the results of Tortosa-Ausina et al. ( 2008 ) showed that performance grew during the

post-deregulation period in which mergers and acquisitions came to an end, mainly because

of improvements in production.