THE INCIDENCE AND PERFORMANCE EFFECTS OF INTERLOCKING DIRECTORATES IN EMERGING MARKET BUSINESS GROUPS : EVIDENCE FROM INDIA

The phenomenon of interlocking directorates is widespread among corporate across the world. This paper studies the structure and extent of interlocking directorates within Indian business groups and analyses the performance effects of such interlocks. It finds that large groups tend to have more interlocks and more heterogeneous the group is, lesser are the interlocks. Finance and trading companies are seen to have a higher intensity of interlocks and holding companies occupy important nodes in the directorial network. The paper also shows that directorial interlocks improve the performance of group-affiliated firms.Interlocking directorates, board structure, corporate governance.

Incidence and performance effects of interlocking directorates in emerging market business groups: Evidence from India

The phenomenon of interlocking directorates is widespread among corporate across the world. This paper studies the structure and extent of interlocking directorates within Indian business groups and analyses the performance effects of such interlocks. It finds that large groups tend to have more interlocks and more heterogeneous the group is, lesser are the interlocks. Finance and trading companies are seen to have a higher intensity of interlocks and holding companies occupy important nodes in the directorial network. The paper also shows that directorial interlocks improve the performance of group-affiliated firms.Interlocking directorates, board structure, corporate governance

INTERLOCK DEWAN DIREKSI, INTERLOCK AUDITOR EKSTERNAL DAN PENGARUHNYA TERHADAP PENGUNGKAPAN SUKARELA

This study aims to examine the effects of board of directors and the external auditors interlocks on the relationship between the levels of voluntary disclosures in the focal and related firms. Voluntary disclosure is additional information aside from mandatory information given by the company to stakeholders in annual report. The purposes of voluntary disclosure are reducing the information asymmetry between managers and investors, reducing litigation costs and increasing management’s control. Board of directors interlock occurs when board of directors of a firm sit on the board of directors in other firms. External auditor interlock occurs when external auditor of a firm also worked for several other firms. This study is expected to give evidence that board of directors and external auditors interlocks have an important role for the company as a source of information exchange between related companies and may encourage companies to make changes in the voluntary disclosure practice is better in the annual report. The population in this study are all non-financial companies publicly listed on the Indonesia Stock Exchange (IDX) 2014. Samples were selected based on predetermined criteria which include non-financial firms with boards of directors and external auditors interlocks and have complete data sets. The number of companies in the research samples were 48 companies. Regression analysis is used as main analysis tool. The results of this study find that the level of voluntary disclosure in related firms’ has a significant and positive effect on voluntary disclosure in focal firms’ that have board of directors interlocks. When there are board of directors interlocks between firms, they have a higher probability to disclose similiar informations in their annual reports than firms without interlock ties. However, this research does not find evidence that the level of voluntary disclosure in related firms’ that have external auditors interlocks affects voluntary disclosure in focal firms’

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

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

Board Interlocks and Their Impact on Corporate Governance: The Indian Experience - Coping with Corporate Cholesterol

Board interlocks occur when a director of one organization sits on the board of directors of another organization. The causes and consequences of these interlocks have been much debated in the western literature but comparatively little is known about interlocks in Indian corporate boards. Board interlocks are essentially analogous to cholesterol. Both are facts of life. Like good cholesterol, there are aspects of interlocking directorates that are beneficial and there are others that are detrimental to the corporation and its stakeholders and their respective interests. In this study, we find that board interlocks are quite widespread in India. Taking a (numerically) small but nevertheless (in terms of market capitalization) an important slice of available corporate data, we observed that in 2010, ‘highly boarded’ directors (defined as those on the board of 5 or more listed NSE companies) who constitute just 6 percent of the overall pool of directors among NSE100 companies are associated with 486 NSE listed companies which account for a whopping 66 percent of the total market capitalization of all NSE listed companies. Interestingly, there appears to be a marked increase in market capitalization of these ‘highly boarded’ companies, which these ‘highly boarded’ directors are linked to over the last several years. For instance, for the 3 years from 2001 to 2003, the market capitalization of ‘highly boarded’ companies ranged between 33 percent to 43 percent; it moved up to peak of 70 percent in 2007 and was at 66 percent in 2010 (the latest year in the study period). The substantive rise in market capitalization of these ‘highly boarded’ companies has coincided with only a marginal increase (from 5% to 6%) in the proportion of ‘highly boarded’ directorships. These trends suggest that despite the well-intentioned regulatory reforms (a) the extent of over-boarding/interlocking among directors has not come down (there is actually a marginal increase) and (b) there appears to be increasing concentration of power among key individuals. Given the general view that concentration of power in a few individuals or entities is not desirable in the larger interests of society, it would appear that the observed trends in the concentration of power among a handful of the country’s corporate elite is a matter for substantive public policy concern. Finally, the regression analysis indicates a positive impact on Return on Assets (ROA) for ‘highly boarded’ directors signifying a negation of the agency centric conceptualization on the role of multiple directors. Instead, connectedness variables (Eigen vector) which proxy for the Resource dependency hypothesis are quite strongly supported. In a nutshell, from public policy perspective, the analysis potentially reflects the ‘bad cholesterol’ elements of multiple directorships in terms of a tiny segment of ‘highly boarded’ directors controlling a significant portion of the country’s economic prowess, whereas the positive influences on company performance provide some evidence of the ‘good cholesterol’.

The effect of interlocks and recommendations of corporate governance on the performance of companies in the Ibex 35

Treball de Final de Grau en Finances i Comptabilitat. Codi: FC1049. Curs acadèmic: 2015-2016The aim of this paper is to analyse whether a greater number of interlocks on the board and compliance with the majority of corporate governance recommendations have any effect on the results of IBEX 35 companies. In order to do this, we will focus on the theory of resource dependence and propose two hypotheses which will collate the effect of interlocks and the compliance of recommendations on the performance of these companies. This effect will be measured using ROA and ROE on a sample of the 35 companies that comprised the IBEX during 2014. Using this, the results show that interlocks have no significant effect on the performance of businesses and the compliance of recommendations has a negative effect

The board of directors and international decision-making

This paper develops a view of how specific elements of the directors' human and social capital can enhance a company's international performance. We have taken the view that the board is an active participant in the firm’s management, and we have therefore set out and tested a number of arguments related to the board’s role in the adoption of international decisions. Specifically, our results point to the need to incorporate board members with high levels of education and international background with ability to learn and process information and to help international decision-making. As shown by our results, a high level of external connectivity of directors could have negative repercussions for internationalization since they limit the time spent on the board and therefore reduces the cohesion and trust inside the board. The implications of this research, therefore, are important for both executives and academics, as it helps to know what attributes contribute to the board’s effectiveness in such a way as to positively affect the internationalization of the firm