Ownership and Control: A Small-World Analysis
33 Pages Posted: 15 Jan 2008
Date Written: December 2007
In this paper we investigate the ownership and control of British firms using recent techniques from computational graph theory. Specifically, we analyze the 'small-world' of ownership and control. A small-world is a network whose actors are linked by a short chain of acquaintances (short path-lengths), but at the same time have a strongly overlapping circle of friends (high clustering). We simulate a set of corporate worlds using an ensemble of random-graphs introduced by Chung and Lu (2002a,b). We find that the corporate governance network structures analyzed here are more clustered ('clubby') than would be predicted by the random-graph model. Path-lengths, though, are generally not shorter than expected. In addition, we investigate the role of financial institutions: potentially important conduits creating connectivity in corporate networks. We find such institutions give rise to systematically different network topologies.
Keywords: Small worlds, corporate governance board of directors
JEL Classification: G32, G34, G20, G15
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