Board Interlocking in Brazil: Directors' Participation in Multiple Companies and its Effect on Firm Value
37 Pages Posted: 3 Oct 2007 Last revised: 20 Jul 2009
Date Written: January 15, 2009
Abstract
This paper investigates the simultaneous participation of directors in different companies from a sample of 320 Brazilian listed firms in 2001, 2003 and 2005. We identify which firms are connected through a network of directors, which corporate characteristics contribute to this phenomenon, and if board interlocking influences firm value and profitability. Our results show that interlocking directorates is a common practice in Brazil among listed firms. Besides, larger boards, more dispersed ownership structures, and larger firm size are associated with higher levels of board interlocking. We also find that firm value is, on average, negatively impacted by interlocking, especially in firms with a “busy board” (when a majority of directors hold three or more directorships) or in firms where the CEO holds directorships in other companies. Overall, this paper provides support for the elaboration of governance guidelines by regulators regarding the consequences of interlocked directorates for corporate value.
Keywords: Board Interlocking, Board of Directors, Corporate Governance, Directors, Firm Value.
JEL Classification: G32, G34
Suggested Citation: Suggested Citation
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