Do Cross-Shareholdings Reflect Bank Control on German Companies? An Analysis of Interlocking in the Supervisory Boards

Abstract

This paper aims to analyse the characteristics of the bank-industry relationship in Germany, showing the ties among financial and industrial companies both in terms of cross-equity-shareholdings and interlocking directorates for the years 2001-2002. Specifically the main purpose of the research is to demonstrate, for the panel of German companies investigated, that bank-firm relationship relies not only on patrimonial linkages but also on personal relationships. Therefore, in order to try to measure the extent of the banks role in Corporate Governance and to evaluate in a deeper sense the effective influence they have on the industry management, we carried out two different analyses. The first, takes into consideration the equity relationships between banks/insurances and the German industrial firms, the second analyses the number of seats held by the same banks in the correspondent supervisory board. In particular, in our opinion, the analysis of the composition of the supervisory boards can help to outline the personal relationships above mentioned. Therefore is understood, that we consider the presence of bank's representatives in others than banks' supervisory boards as signal of banks' opportunity to exert power and influence. Obviously the study is carried out taking into consideration the sweeping changes that, since the late 1990s, have undergone in this model.

The paper is structured in a straightforward way. Chapter 1 reviews all the relevant literature, discusses the traditional features of the German institutional system and evolving trends. Chapter 2 sets the research hypothesis and the methodological choices of analysis. Chapter 3 deals with the evolving trends of the equity relationships between banks/insurances and the industrial firms of the panel. Chapter 4 integrates the analysis of the previous chapter, with a research on the composition of supervisory boards, and uses the collected data to present a descriptive statistics in order to test the research hypothesis. Chapter 5 summarizes and discusses the results of the research.

Keywords: Corporate Governance, interlocking, shareholdings

JEL Classification: G34, M14