Synchronicity and Firm Interlocks in an Emerging Economy
Posted: 26 Dec 2010
Date Written: January 10, 2009
Stock price synchronicity has been attributed to poor corporate governance and a lack of firm-level transparency. This paper investigates the association between different kinds of firm interlocks, control groups, and synchronicity in Chile. A unique dataset containing equity cross-holdings, common individual owners, and director interlocks is used to map out firm ties and control groups. While there is a correlation between synchronicity and share ownership and equity ties, synchronicity is more strongly correlated with interlocking directorates. The presence of shared directors is associated with either reduced firm-level transparency or increased correlation in firm fundamentals - due, for example, to joint resource allocation across the firms.
Keywords: Information and market efficiency, International financial markets, Latin America
JEL Classification: G14, G15, N26
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