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Interlocking directorship across Italian listed companies: evidence from a natural experiment

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Abstract

The financial crisis of 2008 and the introduction of the Interlocking Ban in 2011 (for financial firms) deeply influenced the Italian corporate governance system. The aim of the present study is to investigate to what extent personal ties among the directors of Italian listed companies have changed after these two events. We describe the evolution and dimension of the phenomenon of interlocking directorship (ID) for all the Italian listed companies over the period 1998–2013 using different methodologies. Social network analysis discloses the existence of clusters of companies whose links remain dense after the crisis, while connections to the peripheral units of the system decrease, reducing the overall connectedness. Results reveal that, over the period, there is a reduction in the cumulation ratio which still remains high and mainly due to a high number of directorships for multiple directors. This reduction is more severe after 2008 when both the financial crisis and the Interlocking Ban occur. In disentangling the two effects we observe ID reduction during and after the crisis, also for non-financial firms, confirming the general tendency of a decline in national board interlocking networks.

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Notes

  1. The number of positions held by multiple directors can be lower than the number of seats since it consists of the number of positions covered exclusively by interlocked directors. Therefore, directors who do not sit on other boards are not considered in this computation.

  2. All measures of centrality, of network structure and graph layout are obtained using Gephi. Gephi is an open-source program available at www.gephi.org.

  3. This indicator consists of the number of closed triplets or triangles—three connected nodes—divided by the number of open triplets—three nodes connected by two edges. The value, which ranges from 0 to 1, expresses the probability that the neighbours of a vertex (the other vertices to which the actor is connected by an edge) are also connected to each other, revealing the presence of a small-world network. High numbers of closed triplets translate into different and multiple alternative paths which allow the flow of information even in case of failure on a node or an edge; in this sense, high levels of clustering are associated with high robustness of the network.

  4. We used the modularity optimization algorithm of the Louvain Method (for more detail see: Blondel et al. 2008). The resolution used is 1.0 and the factor comes from Lambiotte et al. (2015)

  5. After the crisis, PCA coefficients turn negative. A negative sign of the PCA coefficient of ID does not imply a negative cumulation ratio; rather, it expresses a negative variation of the ID component driven by the reduction of links among directors.

  6. We conducted the SNA excluding the main business group of the sample to ensure the reduction of interlocking is not driven exclusively by the Reform. Data revealed a decline in the number of ties among directors, even excluding the business group from the sample. These results are not reported in this paper.

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Acknowledgements

The authors would like to thank Professors Alessandro Carretta, Vincenzo Farina, Claudio Porzio, GianMario Raggetti and the colleagues from University of Rome Tor Vergata for their helpful suggestions. We also thank two anonymous referees and the Editor for their comments and feedbacks which have helped us to refine and strengthen this article. In addition, we express our gratitude to Luigi Caiffa who kindly helped us in downloading the data.

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Authors and Affiliations

  1. Department of Management, Polytechnic University of Marche, Piazzale Martelli, 8, 60121, Ancona, Italy

    Lucrezia Fattobene

  2. Department of Experimental and Clinical Medicine, Polytechnic University of Marche, Via Tronto 10/a, 60126, Ancona, Italy

    Lucrezia Fattobene

  3. Deloitte Financial Advisory, Via della Camilluccia 589a, 00135, Rome, Italy

    Marco Caiffa

  4. Department of Management and Law, University of Rome “Tor Vergata”, Via Columbia 2, 00133, Rome, Italy

    Emiliano Di Carlo

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  1. Lucrezia Fattobene
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Correspondence to Lucrezia Fattobene.

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Fattobene, L., Caiffa, M. & Di Carlo, E. Interlocking directorship across Italian listed companies: evidence from a natural experiment. J Manag Gov 22, 393–425 (2018). https://doi.org/10.1007/s10997-017-9392-6

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