Synchronicity and Firm Interlocks in an Emerging Market

Journal of Financial Economics, Vol. 92, No. 2, pp. 182-204, 2008

42 Pages Posted: 26 Oct 2011

See all articles by Tarun Khanna

Tarun Khanna

Harvard University - Strategy Unit

Catherine Thomas

Columbia Business School - Finance and Economics

Date Written: March 6, 2008

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 data set containing equity cross holdings, common individual owners, and director interlocks is used to map out firm ties and control groups in the economy. While there is a correlation between synchronicity and shared 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, for example due to joint resource allocation within the group. In this way, the results are consistent with models where firm interlocks facilitate coordination across firms and are also consistent with models where relationships affect capital allocation.

Suggested Citation

Khanna, Tarun and Thomas, Catherine, Synchronicity and Firm Interlocks in an Emerging Market (March 6, 2008). Journal of Financial Economics, Vol. 92, No. 2, pp. 182-204, 2008 , Available at SSRN: https://ssrn.com/abstract=1949384

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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