Endogenous Interlocking Directorates

27 Pages Posted: 8 May 2018 Last revised: 19 Feb 2019

See all articles by Maria Rosa Battaggion

Maria Rosa Battaggion

University of Bergamo

Vittoria Cerasi

Bicocca University - Department of Economics, Management & Statistics (DEMS)

Date Written: February 17, 2019

Abstract

This paper analyzes the choice to interlock, that is, the decision to have an executive sitting in the board of the rival company. This choice is analyzed within a duopoly where firms with hidden marginal costs of production compete in the product market. Interlocking directorates may emerge as an equilibrium outcome whenever firms gain by exchanging information on their private costs. Our results depart from the information sharing literature, depending on the nature of the agreement between the two companies. When a company needs to be invited to form a tie, then the degree of efficiency of the inviting company affects the occurrence and the type of the interlocking. The equilibrium outcome can take different forms: unilateral, bilateral interlocking or no interlocking. Only efficient firms form bilateral interlocking, while in the case of unilateral interlocking it is the inefficient firm to form the tie. We derive also the welfare implications of the different equilibria.

Keywords: Interlocking Directorates; Boards; Information Sharing; Oligopoly

JEL Classification: D48, L22, M12

Suggested Citation

Battaggion, Maria Rosa and Cerasi, Vittoria, Endogenous Interlocking Directorates (February 17, 2019). University of Milan Bicocca Department of Economics, Management and Statistics Working Paper No. 380. Available at SSRN: https://ssrn.com/abstract=3172363

Maria Rosa Battaggion

University of Bergamo

Via Salvecchio, 19
Bergamo, 24129
Italy

Vittoria Cerasi (Contact Author)

Bicocca University - Department of Economics, Management & Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy
+39-02-64485821 (Phone)
+39-02-64485878 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
28
Abstract Views
139
PlumX Metrics