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Interlocking Boards and Firm Performance: Evidence from a New Panel Database

Author

Listed:
  • Mariëlle C. Non

    (Erasmus Universiteit Rotterdam)

  • Philip Hans Franses

    (Erasmus Universiteit Rotterdam)

Abstract

An interlock between two firms occurs if the firms share one or more directors in their boards of directors. We explore the effect of interlocks on firm performance for 101 large Dutch firms using a large and new panel database. We use five different performance measures, and for each performance measure we design three different panel data models, where we allow the effect of the number of interlocks to be linear, quadratic or square root, either with or without lags. Based on all results we conclude that current interlocks can have a negative effect on future firm performance. We show that this negative effect is jointly established by (1) interlocking directors being too busy and (2) by directors being members of a homogenous upper class group.

Suggested Citation

  • Mariëlle C. Non & Philip Hans Franses, 2007. "Interlocking Boards and Firm Performance: Evidence from a New Panel Database," Tinbergen Institute Discussion Papers 07-034/2, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20070034
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    References listed on IDEAS

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    1. Stephen P. Ferris & Murali Jagannathan & A. C. Pritchard, 2003. "Too Busy to Mind the Business? Monitoring by Directors with Multiple Board Appointments," Journal of Finance, American Finance Association, vol. 58(3), pages 1087-1111, June.
    2. Stephen P. Ferris & Murali Jagannathan & A. C. Pritchard, 2003. "Too Busy to Mind the Business? Monitoring by Directors with Multiple Board Appointments," Journal of Finance, American Finance Association, vol. 58(3), pages 1087-1112, June.
    3. Eliezer M. Fich & Anil Shivdasani, 2006. "Are Busy Boards Effective Monitors?," Journal of Finance, American Finance Association, vol. 61(2), pages 689-724, April.
    4. Hans van Ees & Theo J.B.M. Postma & Elmer Sterken, 2003. "Board Characteristics and Corporate Performance in the Netherlands," Eastern Economic Journal, Eastern Economic Association, vol. 29(1), pages 41-58, Winter.
    5. David A. Carter & Betty J. Simkins & W. Gary Simpson, 2003. "Corporate Governance, Board Diversity, and Firm Value," The Financial Review, Eastern Finance Association, vol. 38(1), pages 33-53, February.
    6. Dooley, Peter C, 1969. "The Interlocking Directorate," American Economic Review, American Economic Association, vol. 59(3), pages 314-323, June.
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    Cited by:

    1. Remzi Gözübüyük & Carl Joachim Kock & Murat Ünal, 2020. "Who appropriates centrality rents? The role of institutions in regulating social networks in the global Islamic finance industry," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 51(5), pages 764-787, July.
    2. Drago, Carlo & Millo, Francesco & Ricciuti, Roberto & Santella, Paolo, 2015. "Corporate governance reforms, interlocking directorship and company performance in Italy," International Review of Law and Economics, Elsevier, vol. 41(C), pages 38-49.
    3. Tetsuji Okazaki & Michiru Sawada, 2012. "Interbank networks in prewar Japan: structure and implications," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 21(2), pages 463-506, April.
    4. Tao, Qizhi & Li, Haoyu & Wu, Qun & Zhang, Ting & Zhu, Yingjun, 2019. "The dark side of board network centrality: Evidence from merger performance," Journal of Business Research, Elsevier, vol. 104(C), pages 215-232.
    5. Lucia Bellenzier & Rosanna Grassi, 2014. "Interlocking directorates in Italy: persistent links in network dynamics," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 9(2), pages 183-202, October.
    6. Federica VIGANO & Andrea SALUSTRI, 2015. "Matching profit and Non-profit Needs: How NPOs and Cooperative Contribute to Growth in Time of Crisis. A Quantitative Approach," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 86(1), pages 157-178, March.
    7. Ettore Croci & Rosanna Grassi, 2014. "The economic effect of interlocking directorates in Italy: new evidence using centrality measures," Computational and Mathematical Organization Theory, Springer, vol. 20(1), pages 89-112, March.
    8. Carlos Drago & Francesco Millo & Roberto Ricciuti & Paolo Santella, 2011. "Corporate Governance Reforms, Interlocking Directorship Networks and Company Value in Italy (1998-2007)," CESifo Working Paper Series 3322, CESifo.
    9. Larcker, David F. & So, Eric C. & Wang, Charles C.Y., 2013. "Boardroom centrality and firm performance," Journal of Accounting and Economics, Elsevier, vol. 55(2), pages 225-250.
    10. Larcker, David F. & So, Eric C. & Wang, Charles C. Y., 2010. "Boardroom Centrality and Stock Returns," Research Papers 2061, Stanford University, Graduate School of Business.
    11. Mazzola, Erica & Perrone, Giovanni & Kamuriwo, Dzidziso Samuel, 2016. "The interaction between inter-firm and interlocking directorate networks on firm's new product development outcomes," Journal of Business Research, Elsevier, vol. 69(2), pages 672-682.
    12. Battistin, Erich & Graziano, Clara & Parigi, Bruno M., 2012. "Connections and performance in bankers’ turnover," European Economic Review, Elsevier, vol. 56(3), pages 470-487.

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    More about this item

    Keywords

    interlocks; firm performance;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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