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A close knit complex network: statistical examination of board interlocks and their impact on financial results
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Date
2021
Authors
Dave, Kirtivardhan Parantap
Journal Title
Journal ISSN
Volume Title
Publisher
University College Cork
Published Version
Abstract
Board of directors are at the pinnacle of the corporate world, in any company they form the highest decision making authority. A position on the board of a company is one of immense privilege and power. Thus, making any individual who occupies such a position privy to information about the company which most people would not have. Even the shareholders who are the owners of the company are not privy to this information. In this study I look at complex networks formed by board interlocks in the United Kingdom. When one director sits on the board of two companies, it creates a board interlock, where he acts as a link between the two companies. The main aim of the study is to look at the relationship between the features of these networks and their impact on the financial results of public limited companies in the United Kingdom. The first part of this study looks at these corporate networks and how they have evolved over the past three decades. Using varied network analysis features, the board interlock network was studied from two different perspectives. First, as a dual mode network or a people to company network. In this kind of network edges are formed between a board member and the company on whose board she sits. Second, as a single mode network where common board members between two companies form an edge between those companies. We find that the corporate network has become denser over the years, exhibiting small world properties. Companies that did not share board members with any other company have nearly halved over the course of the three decades. There have been quite a few studies that have looked at the impact of network features on financial results from various academic perspectives be it financial, sociological, management, and more recently network analysis. I have used four different centrality measures and proposed a ranking based model. Which unlike any other existing study also goes deeper by incorporating different community sizes into the regression model. This allowed me to check whether network features of better connected companies or companies that are a part of larger communities are stronger predictors of financial performance. This study shows an upward trend with the regression fit improving over time.
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Keywords
Complex networks , Corporate networks , Financial networks , Board interlocks
Citation
Dave, K. P. 2021. A close knit complex network: statistical examination of board interlocks and their impact on financial results. MRes Thesis, University College Cork.