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

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. 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. Terms of use: Documents inBased 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.

Do the Board of Directors Composition and the Board Interlocking Influence on Performance?

“…In contrast, the hypothesis of occupation predicts negative influence on the performance of the company. Finally, the effect of the board interlocking can be positive, negative or neutral, when reflecting the cohesion of the directors (Non & Franses, 2007) and, when reflecting sociological phenomenon can be, besides positive, BAR, Rio de Janeiro, v. 13, n. 2, art. 1, e160007, Apr./June 2016 www.anpad.org.br/bar negative (Labianca & Brass, 2006).…”

“…In contrast, the hypothesis of occupation indicates negative influence on the performance of the company. The effect of board interlocking can be positive, negative or neutral, when it reflects high class cohesion (Non & Franses, 2007) and, when it reflects the sociological phenomenon, it can be, besides positive or negative (Labianca & Brass, 2006). That being said, the question that guides this study is: What is the influence of the composition of the Board of Directors and the social relations on the performance of Brazilian companies?…”

Interbank networks in prewar Japan: structure and implications

“…In particular, current research in financial economics investigates how director interlocking affects the firm performance or the effectiveness of monitoring by the board. Some studies hypothesize that directors serving on multiple boards are too busy to perform their monitoring roles effectively, and find supporting empirical evidence that reveals that firms with interlocking directors are associated with lower performance, lower sensitivity of COE turnover to firm performance and negative evaluation from stock markets (Fich and Shivdasani 2006, Non and Franses 2007, Devos et al 2009, and Croci and Grassi 2010. Furthermore, other studies find 1 Research in the field of statistical physics and computational organization science captures quantitatively the structure of networks through interlocking directors.…”

The interaction between inter-firm and interlocking directorate networks on firm's new product development outcomes

“…Interlocking directorate networks act as an inter-personal channel by which information and knowledge resources are exchanged (Pfeffer and Salancik, 1978) to the benefit of the firm. Literature in this field has mainly focused on examining how the interlocking directorate networks affect economic and financial performance (Dalton et al, 1999;Peng and Luo, 2000;Non and Franses, 2007;Pombo and Gutiérrez, 2011;Horton et al, 2012;Croci and Grassi, 2013;Larcker et al, 2013;Li et al, 2013;Kaczmarek et al, 2014), enhance superior innovation performance (Wincent et al, 2010), influence strategic alliance formation (Gulati and Westphal, 1999), contribute to the strategic decision making process (Carpenter and Westphal, 2001), and finally foster internal innovation or external innovation (Hoskisson et al, 2002). Similarly, a lot of research has highlighted the importance of inter-firm network structural positions on the firm's performance.…”