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Interlocking Directorates and Business Groups: Belgian Evidence

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  • Rommens A.
  • Cuyvers L.
  • Deloof M.
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    Abstract

    We investigate the determinants of interlocking directorates and their impact on company performance for a Belgian sample of 286 companies affiliated with a business group and 2,136 stand-alone companies. Most of these companies are not listed. We find that companies belonging to a group have much more interlocking directorates than stand-alone companies. Group companies tend to be strongly interlocked with other group members, including parent companies, and they have more intra-group interlocks when they are located at a higher hierarchical group level. Group companies have more vertical interlocks when they are involved in an internal capital market and when they are affiliated with a diversified business group. We also find that while interlocking directorates are negatively related to the profitability of stand-alone companies, they do not affect the profitability of group companies. This suggests that directors in Belgian business groups are not “too busy”, and that intra-group interlocks are not facilitators of expropriation by controlling shareholders.

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    Bibliographic Info

    Paper provided by University of Antwerp, Faculty of Applied Economics in its series Working Papers with number 2007023.

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    Length: 40 pages
    Date of creation: Nov 2007
    Date of revision:
    Handle: RePEc:ant:wpaper:2007023

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    Web page: https://www.uantwerp.be/en/faculties/applied-economic-sciences/
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    1. Santos, Joao A.C. & Rumble, Adrienne S., 2006. "The American keiretsu and universal banks: Investing, voting and sitting on nonfinancials' corporate boards," Journal of Financial Economics, Elsevier, vol. 80(2), pages 419-454, May.
    2. Chin-Huat Ong & David Wan & Kee-Sing Ong, 2003. "An Exploratory Study on Interlocking Directorates in Listed Firms in Singapore," Corporate Governance: An International Review, Wiley Blackwell, vol. 11(4), pages 322-334, October.
    3. Anil Shivdasani & David Yermack, 1998. "CEO Involvement in the Selection of New Board Members: An Empirical Analysis," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-059, New York University, Leonard N. Stern School of Business-.
    4. Ariane Chapelle & Marco Becht & Luc Renneboog, 2001. "Shareholding cascades: the separation of ownership and control in Belgium," ULB Institutional Repository 2013/9947, ULB -- Universite Libre de Bruxelles.
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    6. Gertner, Robert H & Scharfstein, David S & Stein, Jeremy C, 1994. "Internal versus External Capital Markets," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1211-30, November.
    7. Khanna, Tarun & Yafeh, Yishay, 2005. "Business Groups in Emerging Markets: Paragons or Parasites?," CEPR Discussion Papers 5208, C.E.P.R. Discussion Papers.
    8. Booth, James R. & Deli, Daniel N., 1996. "Factors affecting the number of outside directorships held by CEOs," Journal of Financial Economics, Elsevier, vol. 40(1), pages 81-104, January.
    9. Eliezer M. Fich & Anil Shivdasani, 2006. "Are Busy Boards Effective Monitors?," Journal of Finance, American Finance Association, vol. 61(2), pages 689-724, 04.
    10. Fich, Eliezer M. & White, Lawrence J., 2005. "Why do CEOs reciprocally sit on each other's boards?," Journal of Corporate Finance, Elsevier, vol. 11(1-2), pages 175-195, March.
    11. Khanna, Tarun & Yafeh, Yishay, 2005. "Business Groups in Emerging Markets: Paragons or Parasites?," CEI Working Paper Series 2005-1, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    12. Claudio Loderer & Urs Peyer, 2002. "Board Overlap, Seat Accumulation and Share Prices," European Financial Management, European Financial Management Association, vol. 8(2), pages 165-192.
    13. Hallock, Kevin F., 1997. "Reciprocally Interlocking Boards of Directors and Executive Compensation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 32(03), pages 331-344, September.
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