Synchronicity and Firm Interlocks in an Emerging Economy

Posted: 26 Dec 2010

See all articles by Tarun Khanna

Tarun Khanna

Harvard University - Strategy Unit

Catherine Thomas

Columbia Business School - Finance and Economics

Date Written: January 10, 2009

Abstract

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

Suggested Citation

Khanna, Tarun and Thomas, Catherine, Synchronicity and Firm Interlocks in an Emerging Economy (January 10, 2009). Journal of Financial Economics, 2009, Available at SSRN: https://ssrn.com/abstract=1731309

Tarun Khanna

Harvard University - Strategy Unit ( email )

Harvard Business School
Boston, MA 02163
United States
617-495-6038 (Phone)
617-495-0355 (Fax)

Catherine Thomas (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

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