Determinants of Intra-group Interlocking in European listed business groups

Titolo Rivista FINANCIAL REPORTING
Autori/Curatori Emiliano Di Carlo, Lucrezia Fattobene, Marco Caiffa
Anno di pubblicazione 2023 Fascicolo 2023/1
Lingua Inglese Numero pagine 34 P. 33-66 Dimensione file 303 KB
DOI 10.3280/FR2023-001002
Il DOI è il codice a barre della proprietà intellettuale: per saperne di più clicca qui

Qui sotto puoi vedere in anteprima la prima pagina di questo articolo.

Se questo articolo ti interessa, lo puoi acquistare (e scaricare in formato pdf) seguendo le facili indicazioni per acquistare il download credit. Acquista Download Credits per scaricare questo Articolo in formato PDF

Anteprima articolo

FrancoAngeli è membro della Publishers International Linking Association, Inc (PILA)associazione indipendente e non profit per facilitare (attraverso i servizi tecnologici implementati da CrossRef.org) l’accesso degli studiosi ai contenuti digitali nelle pubblicazioni professionali e scientifiche

Purpose: The phenomenon of Interlocking Directorship within the same busi-ness group (the Intra-group Interlocks, IgI) has received little attention by scholars, especially when the interlocked affiliated-group companies are listed. Focusing on listed business groups, characterized by the presence of at least two affiliated-listed companies, and following the contingency perspective, this study aims to explore the determinants of IgI. Design/methodology/approach: The study analyses the controlling sharehold-er type (family, State, coalitions), the business ties, and the separation between ownership and control, focusing on 315 business groups listed in different Europe-an countries, i.e., Belgium, France, Greece, Italy, Spain, and Portugal. The social network analysis is applied to these groups, to compare the networks that originate from the corporate board of directors. Findings: In groups controlled by the State the density of social links is lower than in those controlled by families and coalitions. The strength of IgI is also relat-ed to the degree of correlation of firms’ industries, even if this correlation is influ-enced by the separation between ownership and control and by the country regula-tion that protects minority shareholders. Overall, the results show that for listed groups the agency theory better explains the determinants of the IgI phenomenon. Originality/value: This study contributes to the understanding of why board members of listed parent companies sit (or do not sit) in the listed subsidiary boards. Relying on agency theory and resource dependence theory, it also propos-es a theoretical framework.

Keywords:board of directors, business groups, intra-group interlocking, resource dependence, agency theory.

Jel codes:G30, G32, G39

  1. Aganin A. and Volpin P. (2003), History of corporate ownership in Italy, ECGI Working Paper Series in Finance, 17.
  2. Aguilera R. V., Filatotchev I., Gospel H. and Jackson G. (2008), An organizational approach to comparative corporate governance: Costs, contingencies, and complementarity, Organization Science, 19(3), pp. 475-492.
  3. Almeida H. and Wolfenzon D. (2006), A theory of pyramidal ownership and family business groups, Journal of Finance, 61, pp. 2637-2680.
  4. Attig N. and Morck R. (2005), Boards and corporate governance in a typical country, Working Paper, University of Alberta.
  5. Bianchi M. and Bianco M. (2006), Italian corporate governance in the last 15 years: From pyramids to coalitions, ECGI Finance Working Paper, 144.
  6. Boardman A. and Vining A. (1989), Ownership and performance in competitive environments: a comparison of the performance of private, mixed and state-owned enterprises, Journal of Law and Economics, 32(1), pp. 1-32.
  7. Buchuk D., Larrain B., Muñoz F. and Urzúa F. (2014), The internal capital markets of business groups: Evidence from intra-group loans, Journal of Financial Economics, 112(2), pp. 190-212.
  8. Chang S. J. (2003), Ownership structure, expropriation, and performance of group-affiliated companies in Korea, Academy of Management Journal, 46, pp. 238-253.
  9. Chang S. J. and Hong J. (2002), How much do business groups matter in Korea, Strategic Management Journal, 23, pp. 265-274.
  10. Cheung Y. L., Rau P. R. and Stouraitis A. (2006), Tunneling, propping, and expropriation: Evidence from connected party transactions in Hong Kong, Journal of Financial economics, 82(2), pp. 343-386.
  11. Claessens S. and Fan J. P. H. (2002), Corporate governance in Asia: A survey, International Review of Finance, 3(2), pp. 71-103.
  12. Claessens S., Djankov S. and Lang L. H. P. (2000), The separation of ownership and control in East Asian corporations, Journal of Financial Economics, 58, pp. 81-112.
  13. Claessens S., Djankov S., Fan J. P. H. and Lang L. H. P. (2002), Disentangling the Incentive and Entrenchment Effects of Large Shareholdings, Journal of Finance, 57(6), pp. 2741-2771.
  14. Claessens S., Fan J. P. H. and Lang L. H. P. (2006), The benefits and costs of group affiliation: evidence from East Asia, Emerging Market Review, 7, pp. 1-26.
  15. Coase R. (1960), The problem of social cost, Journal of Law and Economics, 3.
  16. Croci E. and Grassi R. (2013), The economic effect of interlocking directorates in Italy: New evidence using centrality measures, Computational and Mathematical Organization Theory, 20(1), pp. 89-112.
  17. De Alessi L. (1980), The economics of property rights: A review of the evidence, Research in Law and Economics, 2(1) (R. Zerbe ed.).
  18. De B. (2003), The incidence, performance effects of interlocking directorates in emerging market business groups: evidence from India, Working Paper, Indira Gandhi Institute of Development Research.
  19. Dharwadkar R., George G. and Brandes P. (2000), Privatization in emerging economies: An agency theory perspective, Academy of Management Review, 25, pp. 650-669.
  20. Di Carlo E., Fortuna F. and Testarmata S. (2016), Boundaries of the business model within business groups, Journal of Management and Governance, 20(2), pp. 321-362
  21. Di Carlo E. (2014), Pyramids and the separation between direction and control of non-financial Italian family companies, Journal of Management and Governance, 18(3), pp. 835-872.
  22. Di Carlo E. and Ranalli F. (2020), Interpreting corporate performance and governance of listed subsidiaries, in S. Dell’Atti, M. Manzaneque, & S. Hundal (Eds.), Board of directors: A review of practices and empirical research, pp. 145-166,( Sumy, Ukraine: Virtus Interpress).
  23. Di Pietra R., Grambovas C. A., Raonic I. and Riccaboni A. (2008), The effects of board size and ‘busy’ directors on the market value of Italian companies, Journal of Management and Governance, 12(1), pp. 73-91.
  24. Djankov S., La Porta R., Lopez-de-Silanes F. and Shleifer A. (2008), The law and economics of self-dealing, Journal of Financial Economics, 88, pp. 430-465.
  25. Drago C., Millo F., Ricciuti R. and Santella P. (2015), Corporate governance reforms, interlocking directorship and company performance in Italy, International Review of Law and Economics, 41(C), pp. 38-49.
  26. Dyck A. and Zingales L. (2004), Private benefits of control: An international comparison. Journal of Finance, 59(2), pp. 537-600.
  27. Eckel C. and Vining A. (1985), Elements of a theory of mixed enterprise, Scottish Journal of Political Economy, 32(1), pp. 82-94.
  28. Enriques L. and Volpin P. (2007), Corporate Governance Reforms in Continental Europe, Journal of Economic Perspectives, 21, pp. 117-140.
  29. Faccio M. and Lang L. H. P. (2002), The ultimate ownership of Western European corporations, Journal of Financial Economics, 65, pp. 365-395.
  30. Faccio M., Lang L. and Young L. (2001), Dividends and expropriation, American Economic Review, 91, pp. 54-78.
  31. Fattobene L., Caiffa M. and Di Carlo E. (2018), Interlocking directorship across Italian listed companies: evidence from a natural experiment, Journal of Management and Governance,
  32. Ferris S. P., Jagannathan M. and Pritchard A. C. (2003), Too Busy to mind the business? Monitoring by directors with multiple board appointments, Journal of Finance, 58, pp. 1087-1111.
  33. Fich E. and Shivdasani A. (2006), Are busy boards effective monitors?, The Journal of Finance, 61, pp. 624-689.
  34. Fligstein N. and Brantley P. (1992), Bank control, owner control, or organizational dynamics: Who controls the large modern corporation?, American Journal of Sociology, 98, pp. 280-307.
  35. Franks J. and Mayer C. (1997), Corporate ownership and control in the UK, Germany, and France, Journal of Applied Corporate Finance, 9(4), pp. 30-45. French corporate governance codes (2018).
  36. Friedman E., Johnson S. and Mitton T. (2003), Propping and tunnelling, Journal of Comparative Economics, 31(4), pp. 732-750.
  37. Geletkanycz M. A. and Boyd B. K. (2011), CEO outside directorship and firm performance: A reconciliation of agency and embeddedness views, Academy of Management Journal, 54, pp. 335-352.
  38. Gianfrate G. M. (2007), What do shareholders’ coalitions really want? Evidence from Italian voting trusts, Corporate Governance: An International Review, 15(2), pp. 122-132.
  39. Gomes A. (2000), Going public without governance: managerial reputation effects, Journal of Finance, 55, pp. 615-646.
  40. Goto A. (1982), Business groups in market economy, European Economic Review, 19, pp. 53-70.
  41. Hallock K. F. (1997), Reciprocally interlocking boards of directors and executive compensation, The Journal of Financial and Quantitative Analysis, 32(3), pp. 331-344.
  42. Haunschild R. and Beckman C. M. (1998), When do interlocks matter? Alternate sources of information, interlock influence, Administrative Science Quarterly, 43, pp. 815-844.
  43. Hendry J. (2002), The principal’s other problems: Honest incompetence and the specification of objectives, Academy of Management Review, 27, pp. 98-113.
  44. Hillman A. J. and Dalziel T. (2003), Boards of directors and firm performance: Integrating agency and resource dependence perspectives, Academy of Management Review, 28(3), pp. 383-396.
  45. Horton J., Millo Y. and Serafeim G. (2012), Resources or Power? Implications of Social Networks on Compensation and Firm Performance, Journal of Business Finance & Accounting, 39(3-4), pp. 399-426.
  46. Hung H. (1998), A typology of the theories of the roles of governing boards, Corporate Governance: An International Review, 6, pp. 101-111.
  47. Jensen M. C. and Meckling W. (1976), Theory of the firm: Managerial behavior, agency costs, and capital structure, Journal of Financial Economics, 3, pp. 305-360.
  48. Jiang Y. and Peng M. W. (2011), Principal-principal conflicts during crisis, Asia Pacific Journal of Management, 28(4), pp. 683-695.
  49. Kaczmarek S. P., Kimino S. and Pye A. J. (2012), Interlocking directorships and firm performance in the highly regulated sectors: The moderating impact of board diversity, Journal of Management and Governance,
  50. Khanna T. and Palepu K. (2000), Is group affiliation profitable in emerging markets? An analysis of diversified Indian business groups, Journal of Finance, 55(2), pp. 867-891.
  51. Khanna T. and Palepu K. (1999), Emerging market business groups, foreign investors and corporate governance, NBER Working Paper, 6955.
  52. Khanna T. and Rivkin J. W. (2000), Ties that bind business groups: Evidence from an emerging economy, Mimeo, (Cambridge, MA: Harvard University).
  53. Khanna T. and Rivkin J. W. (2006), Interorganizational ties and business group boundaries: Evidence from an emerging economy, Organization Science, 17(3), pp. 333-352.
  54. Khanna T. and Yafeh Y. (2007), Business groups in emerging markets: paragons or parasites?, Journal of Economic Literature, 45, pp. 331-372.
  55. Kiel G. C. and Nicholson G. J. (2006), Multiple directorships and corporate performance in Australian listed companies, Corporate Governance: An International Review, 14(6), pp. 530-546.
  56. Kim B., Prescott J. E. and Kim S. M. (2005), Differentiated governance of foreign subsidiaries in transnational corporations: An agency theory perspective, Journal of International Management, 11(1), pp. 43-66.
  57. Koenig T. and Gogel R. (1981), Interlocking corporate directorships as a social network, American Journal of Economics and Sociology, 40, pp. 37-50.
  58. Koenig T., Gogel R. and Sonquist J. (1979), Models of the significance of interlocking corporate directorates, American Journal of Economics, Sociology, 38, pp. 173-186.
  59. Koslowski P. (2009), The ethics of corporate governance: A continental European perspective, International Journal of Law and Management, 51(1), pp. 27-34.
  60. La Porta R., Lopez-de-Silanes F. and Shleifer A. (1999), Corporate ownership around the world, Journal of Finance, 54(2), pp. 471-517.
  61. La Porta R., Lopez‐de‐Silanes F., Shleifer A. and Vishny R. (2002), Investor protection and corporate valuation, The Journal of Finance, 57(3), pp. 1147-1170.
  62. Leff N. (1978), Industrial organization and entrepreneurship in the developing countries: The economic groups, Economic Development and Cultural Changes, 26, pp. 661-675.
  63. Leksell L. and Lindgren U. (1982), The board of directors in foreign subsidiaries, Journal of International Business Studies, 13(1), pp. 27-38.
  64. Loderer C. and Peyer U. (2002), Board overlap, seat accumulation and share prices, European Financial Management, 8, pp. 165-192.
  65. Mace M. (1971), Directors: Myth and Reality (Boston: Graduate School of Business Administration, Harvard University).
  66. Maman D. (2000), Who accumulates directorships of big business firms in Israel: Organizational structure, social capital and human capital, Human Relations, 53(5), pp. 603-629.
  67. McNulty T. and Pettigrew A. (1999), Strategists on the board, Organization Studies, 20, pp. 47-74.
  68. Meeusen W. and Cuyvers L. (1985), The interaction between interlocking directorships, the economic behaviour of companies, in Stokman F. N., Ziegler R., Scott J. (Eds.), Networks of corporate power: a comparative analysis of ten countries (Oxford: Polity Press).
  69. Melis A. and Zattoni A. (2017), A primer on corporate governance: Italy (New York: Business Expert Press).
  70. Mitchell J. C. (1969), Social networks in urban situations (Manchester: Manchester University Press).
  71. Mizruchi M. S. (1996), What do interlocks do? An analysis, critique, and assessment of re-search on interlocking directorates, Annual Review of Sociology, 22, pp. 271-298.
  72. Morck R. (2005), How to eliminate pyramidal business groups: The double taxation of inter-corporate dividends and other incisive uses of tax policy, Tax Policy and the Economy, 19, pp. 135-179.
  73. Morck R. and Yeung B. (2003), Agency problems in large family business groups, Entrepreneurship: Theory and Practice, 27, pp. 367-84.
  74. Moscariello N., Pizzo M., Govorun D. and Kostyuk A. (2019), Independent minority directors and firm value in a principal-principal agency setting: evidence from Italy. Journal of Management and Governance, 23(1), pp. 165-194.
  75. Nenova T. (2000), The value of corporate votes and control benefits: A cross country analysis, Working Paper, Harvard University.
  76. Ong C., Wan D. and Ong K. (2003), An exploratory study on Interlocking Directorates in Listed Firms in Singapore, Corporate Governance: An International Review, 11(4), pp. 322-334.
  77. Orrù M., Hamilton G. G. and Suzuki M. (1989), Patterns of inter-firm control in Japanese business, Organization Studies, 10, pp. 549-574.
  78. Palmer D. (1983), Broken ties: Interlocking directorates and intercorporate coordination, Administrative Science Quarterly, 28(1), pp. 40-55.
  79. Pargendler M., Musacchio A. and Lazzarini S. (2013), In strange company: The puzzle of private investment in state-controlled firms, Working Paper #13-071, Harvard Business School.
  80. Persakis A. and Iatridis G. E. (2017), The joint effect of investor protection, IFRS and earnings quality on cost of capital: An international study, Journal of International Financial Markets, Institutions and Money, 46, pp. 1-29.
  81. Pfeffer J. (1972), Size and composition of corporate boards of directors, Administrative Science Quarterly, 17, pp. 218-228.
  82. Pfeffer J. and Salancik G. R. (1978), The external control of organizations: A resource dependence perspective (New York, NY: Harper & Row).
  83. Phan P. H., Lee S. H. and Lau S. C. (2003), The performance impact of interlocking directorates: The case of Singapore, Journal of Managerial Issues, 15, pp. 338-352.
  84. Rommens A., Cuyvers L. and Deloof M. (2007), Interlocking directorates and business groups: Belgian evidence, -- http://hdl.handle.net/10067/6635801511 62165141.
  85. Roth K. and O’donnell S. (1996), Foreign subsidiary compensation strategy: An agency theory perspective, Academy of management Journal, 39(3), pp. 678-703.
  86. Schoorman F. D., Bazerman M. H. and Atkin R. S. (1981), Interlocking directorates: A strategy for reducing environmental uncertainty, Academy of Management Review, 6, pp. 243-251.
  87. Schulze W., Lubatkin M., Dina R. and Buchholtz A. (2001), Agency relationship in family firms: Theory and evidence, Organizaton Science, 12(2), pp. 99-116.
  88. Shan Y. G. (2013), Can internal governance mechanisms prevent asset appropriation? Examination of Type I tunneling in China, Corporate Governance: An International Review, 21 (3), pp. 225-241.
  89. Shropshire C. (2010), The role of the interlocking director and board receptivity in the diffusion of practices, Academy of Management Review, 35, pp. 246-264.
  90. Silva F., Majluf N. and Paredes R. D. (2006), Family ties, interlocking directorates, performance of business groups in emerging countries: The case of Chile, Journal of Business Research, 59, pp. 315-321.
  91. Singh M., Nejadmalayeri A. and Mathur I. (2007), Performance impact of business group affiliation: An analysis of the diversification-performance link in a developing economy, Journal of Business Research, 60(4), pp. 339-347.
  92. Van Ees H., Gabrielsson J. and Huse M. (2009), Toward a behavioural theory of boards and governance, Corporate Governance: An International Review, 17, pp. 307-319.
  93. Vining A. R., Boardman A. E. and Moore M. A. (2014), The theory and evidence pertaining to local government mixed enterprises, Annals of Public and Cooperative Economics, 85(1), pp. 53-86.
  94. Volpin P. F. (2002), Governance with poor investor protection: Evidence from top executive turnover in Italy, Journal of Financial Economics, 64(1), pp. 61-90.
  95. Wasserman S. and Faust K. (1994), Social network analysis: Methods and applications (New York: Cambridge University Press).
  96. Weimer J. and Pape J. (1999), A taxonomy of systems of corporate governance, Corporate Governance: An International Review, 7(2), pp. 152-166.
  97. Williamson O. (1985), The economic institutions of capitalism: Firms, markets, relational contracting (New York, Free Press).
  98. Wolfenzon D. (1999), A theory of pyramidal structures, Working Paper, Harvard University.
  99. Yeo H. Y., Pochet C. and Alcouffe A. (2003), CEO Reciprocal Interlocks in French Corporations, Journal of Management and Governance, 7(1), pp. 87-108.
  100. You D., Bruton G. and Lu Y. (2005), Understanding business group performance in an emerging economy: Acquiring resources and capabilities in order to prosper, Journal of Management Studies, 42, pp. 183-206.
  101. Young M. N., Peng M. W., Ahlstrom D., Bruton G. D. and Jiang Y. (2008), Corporate governance in emerging economies: A review of the principal-principal perspective, Journal of Management Studies, 45(1), pp. 196-220.
  102. Zahra S. A. and Pearce J. A. (1989), Boards of directors and corporate financial performance: A review and integrative model, Journal of Management, 15, pp. 91-334.
  103. Zingales L. (1994), The value of the voting right: A study of the Milan Stock Exchange experience, Review of Financial Studies, 7, pp. 125-148.
  104. Zona F., Gomez-Mejia L. R. and Withers M. C. (2018). Board interlocks and firm performance: Toward a combined agency-resource dependence perspective. Journal of Management, 44(2), pp. 589-618.

Emiliano Di Carlo, Lucrezia Fattobene, Marco Caiffa, Determinants of Intra-group Interlocking in European listed business groups in "FINANCIAL REPORTING" 1/2023, pp 33-66, DOI: 10.3280/FR2023-001002