Board Interlocks and Company Outcomes: A Managerial Accounting Case

Board interlocks are formed between two company boards when these companies share at least one common director, resulting in a reciprocal relationship from which both partners expect to benefit. Such conditions imply that directors in these interlocks will be less likely to provide strict monitoring oversight (Beckman, Haunschild, Phillips, 2004). This case examines the ethical and governance issues arising from board interlocks. The analysis examines further how board interlocks are less likely to provide strict monitoring functions on firm operations and financial reporting. Participants noted that since board interlocks imply that companies co-share members on their boards in a reciprocal relationship from which both partners expect to benefit, such conditions lead to less rigorous monitoring oversight. Participants also noted that board interlocks may create openings for operational practices with adverse firm outcomes, such as ineffective internal controls over financial reporting

The Effect of Incoming Board Interlocks With Public Firms on Private Firms’ Survival: Large-Scale Evidence From India

How private firms can overcome their unique governance challenges remains an important but understudied topic. Using novel data on more than 28,000 private firms in India from 1988 to 2017, we examine whether private firms can improve their survival prospects by having board interlocks with public firms and, specifically, interlocks whereby a public firm director subsequently joins the private firm's board. In our data, we found a U-shaped relationship between the number of incoming board interlocks and the probability of private firm exit. We also found that board interlocks formed by public firm directors of public firms audited by Big Four companies improve private firms’ survival more than other interlocks, consistent with the notion that such interlocks improve monitoring at private firms. Overall, our study points toward the importance of considering the role of incoming board interlocks when explaining private firm survival

ANALISIS PENGARUH BOARD INTERLOCKS, KEPEMILIKAN INSTITUSIONAL, KEPEMILIKAN ASING, DAN KEPEMILIKAN MANAJERIAL TERHADAP PENGUNGKAPAN SUKARELA (Studi Empiris pada Perusahaan Non-Keuangan yang Terdaftar di Bursa Efek Indonesia tahun 2014)

The aim of this study is to examine the influence of board interlocks and ownership structure, consisted of institutional ownership, foreign ownership, and managerial ownership on voluntary disclosure on annual reports published by the companies. The population used in this study is non-financial companies listed on Indonesia Stock Exchange in 2014 that published their annual reports as well as financial reports. The sampling method used in this study is pusposive sampling, and obtained a total sample of 339 companies. This study uses the technique of multiple linear regression analysis. The empirical results of this study show that board interlocks have positively influenced the level of voluntry disclosure. While Institutional, foreign, and managerial ownership have negatively influenced the level of voluntary disclosure

Director Reputation, Ceo-Board Power, And The Dynamics Of Board Interlocks

This study advances research on CEO-board relationships, interlocking directorates, and director reputation by examining how contests for intraorganizational power can affect interorganizational ties. We propose that powerful top managers seek to maintain their control by selecting and retaining board members with experience on other, passive boards and excluding individuals with experience on more active boards. We also propose that powerful boards similarly seek to maintain their control by favoring directors with a reputation for more actively monitoring management and avoiding directors with experience on passive boards. Hypotheses are tested longitudinally using CEO-board data taken from 491 of the largest U.S. corporations over a recent seven-year period. The findings suggest that variation in CEO-board power relationships across organizations has contributed to a segmentation of the corporate director network. We discuss how our perspective can reconcile contrary views and debates on whether increased board control has diffused across large U.S. corporations.(.)Managemen

Board interlocks and earnings management contagion

We examine whether earnings management spreads from firm to firm via board connections of shared directors. A firm has a higher likelihood of restating earnings in a given year if it shares a director with another firm that restated earnings either in that same year or within the past two years. We also find evidence of earning management contagion at the earlier restating period when the accounting violated GAAP. In this case, a firm has a higher probability of later restating earnings reported in the current year if it shares a director with other firms that have to restate earnings for the current or past two years. Furthermore, we find that earnings management contagion is stronger when it’s the shared director has a more important relevant position. A board chairman, audit committee member or especially audit committee chairman who is also a director at another firm is associated with stronger contagion relative to other board positions of shared directors. This finding is consistent with the importance of the role of board monitoring to ensure high quality financial reporting. Board network contagion effects are not due to reverse causality, endogenous matching of firm characteristics or common industry shocks, but are weakened by endogenous matching of director characteristics. Board network contagion effects also subsume contagion from geographical proximity of firms, and are incremental to other sources of earnings management incentives, such as M&A and new issue activities. Overall, the evidence supports the idea that economic behaviors such as earnings manipulation spread through social networks.postprin

Cooperative Or Controlling? The Effects Of Ceo-Board Relations And The Content Of Interlocks On The Formation Of Joint Ventures

This study examines the influence of the social network of board interlocks on strategic alliance formation. Our theoretical framework suggests how board interlock ties to other firms can increase or decrease the likelihood of alliance formation, depending on the content of relationships between CEOs (chief executive officers) and outside directors. Results suggest that CEO-board relationships characterized by independent board control reduce the likelihood of alliance formation by prompting distrust between corporate leaders, while CEO-board cooperation in strategic decision making appears to promote alliance formation by enhancing trust. The findings also show how the effects of direct interlock ties are amplified further by third-party network ties.Business Administratio

The influence of board interlocks on the practice of voluntary disclosure in Brazilian companies

The study investigates the influence of the board interlocks structure in the voluntary disclosure of publicly traded companies in Brazil. The social network analysis approach is used to capture and evaluate the level of relationship existing between companies due to the ties formed by members of the board of directors. Two hypotheses explore the measures of (i) degree centrality and (ii) betweenness centrality, which have the potential to describe the positioning of the actors in a network. The third hypothesis addresses the issue of bond quality (holes). The results suggest that the board structure of board interlocks increases the propensity of companies to report information of a voluntary nature in their annual reports. It is interpreted, therefore, that the board interlocks acts as a factor that favors the dissemination of practices of voluntary disclosure

Aktiiviset omistajat, yhteiset hallitusten jäsenet ja yritysten hallinto

Board interlocks, i.e. shared board members, are a widely researched phenomenon in the study of inter-organisational connections. Board interlocks have been shown to influence, among other things, the spread of organisational practices, M&A behaviour, and alliance formation. However, despite the academic attention, board interlocks have been treated as an exogenous phenomenon, without considering their antecedents. This study hypothesises that board interlocks that are associated with active owners, i.e. owners with a long investment horizon and a high portfolio concentration, are more likely to influence corporate governance. This is because active owners are hypothesised to use the board of directors as a device to exert power over the company, and hence be an important antecedent to the formation of board interlocks that induce changes in corporate governance. The hypotheses are tested using a unique dyadic data set of S&P 1500 companies in the years 2003-2008, applying modern causal mediation methodology. The results show that, as hypothesised, a statistically significant indirect effect from active owners to changes in corporate governance exists, through board interlocks. This highlights the importance of considering the antecedents of board interlocks when studying their consequences. Additionally, mixed evidence of strong direct effects from active owners to changes in corporate governance is found in some factors of corporate governance, which calls for further research. This study contributes to the fields of active ownership, board interlocks, and corporate governance in three ways. First, it is the first empirical study to incorporate antecedents to the model when considering the consequences of board interlocks. Second, it employs a unique, wide data set, and modern, robust causal mediation methodology, previously unused in board interlock research. Finally, it bridges theoretical gaps between the fields of active ownership, board interlock, and corporate governance research by empirically showing that significant causal links exist between them.Yhteisillä hallituksen jäsenillä tarkoitetaan kahden tai useamman yrityksen hallituksissa istuvaa henkilöä, jotka näin luovat yhteyden kyseisten yrityksien välille. Ilmiötä on tutkittu laajalti yritystenvälisten suhteiden tutkimuksessa, ja yhteisten hallitusten jäsenten on näytetty vaikuttavan, muun muassa, hallintotapojen leviämiseen, yrityskauppakäyttäytymiseen sekä allianssien muodostumiseen. Tästä laajasta akateemisesta huomiosta huolimatta yhteisiä hallituksen jäseniä on käsitelty eksogeenisena ilmiönä, huomioimatta niiden syntyyn vaikuttavia tekijöitä. Työn hypoteesissa esitellään teoria, jonka mukaan aktiiviset omistajat, eli omistajat joilla on pitkän aikavälin sijoitusstrategia sekä keskitetty sijoitusportfolio, saavat aikaan yhteisiä hallituksen jäseniä, jotka vaikuttavat yritysten hallintoon. Hypoteesin taustalla on oletus siitä, että aktiiviset omistajat hyödyntävät hallitusta vallankäytön välineenä, ja näin luovat yrityksen hallintoon vaikuttavia yhteyksiä hallitusten välille. Hypoteeseja testattiin käyttämällä ainutlaatuista dyadista tietokantaa S&P 1500 -yrityksistä vuosina 2003 - 2008, soveltamalla siihen modernin kausaalisen mediaatioanalyysin metodologiaa. Analyysin tulokset tukevat hypoteeseja; niistä löytyy kautta linjan tilastollisesti merkittävä epäsuora vaikutus aktiivisista omistajista yhteisten hallitusten jäsenten kautta muutoksiin yrityksen hallinnossa. Tämä korostaa yhteisten hallituksen jäsenten muodostumiseen vaikuttavien tekijöiden sisällyttämisen tärkeyttä vastaavissa analyyseissä. Lisäksi tuloksista löytyy osittaisia todisteita voimakkaasta suorasta vaikutuksesta aktiivisista omistajista yritysten hallintoon, mikä vaatii lisätutkimusta. Tämä tutkimus edistää aktiivisen omistajuuden, yhteisten hallituksen jäsenten sekä yritysten hallinnon tutkimusaloja kolmella tavalla. Ensinnä, se on ensimmäinen empiirinen tutkimus, joka yhdistää yhteisten hallituksen jäsenten muodostumiseen vaikuttavat tekijät niiden vaikutuksia tutkivaan malliin. Toiseksi, se käyttää ainutlaatuista, laajaa tietokantaa sekä modernia kausaalisen mediaatioanalyysin metodologiaa, joita ei ole aiemmin käytetty vastaavassa tutkimuksessa. Kolmanneksi, se kuroo umpeen teoreettista kuilua tutkimiensa kenttien välillä näyttämällä, että niiden välillä vallitsee merkittäviä kausaalisia yhteyksiä