The Economic Effect of Interlocking Directorates in Italy: New Evidence Using Centrality Measures

Abstract

We use measures of vertex centrality to examine interlocking directorates and their economic effects in Italy. We employ centrality measures like degree, eigenvector centrality, betweenness, and flow betweenness, along with the clustering coefficient. We document the existence of a negative relationship between both degree and eigenvector centrality and firm value. Betweenness and flow betweenness, on the other hand, are not associated with lower firm valuations. We argue that these differences derive from the different properties of these measures: while degree and eigenvector centrality measures the influence and the power of the connections, betweennness and flow betweenness are proxies for the volume of information that passes between the nodes. This result is robust with respect to the use of both stock market and operating performance measures, as well as several controlling variables.

Keywords: Corporate boards, centrality, interlockings, firm performance, stock price

JEL Classification: C02, D85, G3, G34