Bad loans and de novo banks: evidence from Italy

Abstract

The existing empirical evidence suggests that there is a “winner’s curse” for banks entering new markets. Actually, it has been assessed that de novo banks generally experience higher bad loans rates than mature banks for about ten years. We investigate whether this persistence has characterized the Italian banking industry in the period 1995-2010, and find that theory predictions are confirmed by empirical results. This evidence is robust to different model specifications. We also show that cooperative credit banks (CCBs) perform better than the others banks, due to their focus on local markets.