1
$\begingroup$

I need to interpret some empirical results telling me that firms (intended as profit-maximising entities) prefer to be controlled (e.g. through interlocking directorships) by smaller and less profitable companies. I couldn't find any piece of literature helping me in this sense. Do you have some advice on that? Any hint would be really appreciated.

$\endgroup$
  • $\begingroup$ When you say "firms prefer", which people at the firms do you mean? When you say controlled are you referring to "interlocking directorships"? $\endgroup$ – BKay Feb 11 '16 at 15:12
  • $\begingroup$ As I understand it, your empirical findings indicate the opposite than what "interlocking directorships" codifies: instead of large and profitable companies controlling smaller and less profitable companies because the latter want to have the managers of the former in the boards, you found that larger and more profitable firms "prefer"(????? -you still haven't clarified what you mean by this word) to engage in the opposite situation. $\endgroup$ – Alecos Papadopoulos Feb 11 '16 at 16:07
  • $\begingroup$ Thanks for your comment. I find the literature explaining board interlocks very variegated. In which paper did you find (explicitly stated) that what "interlocking directorships codifies" is that "large and profitable companies" control "smaller and less profitable companies because the latter want to have the managers of the former in the boards"? $\endgroup$ – user3285148 Feb 11 '16 at 16:14
1
$\begingroup$

I've heard of this phenomenon but not for the reasons you suggest:

The largest corporations tend to have the most interlocks (Table 4). This may occur because the directors of the largest corporations are the most knowledgeable, the most capable, and the most accomplished men available. Other corporations would naturally seek their advice and would rather have them on their board than men of less ability. This may also occur, however, because of factors unrelated to managerial ability. The director of a giant corporation undoubtedly has more personal influence with other companies, with potential investors, and with the government than the common man. Having the director from a large corporation on your board may also lead to profitable business with that corporation.

Dooley, P. C. (1969). The interlocking directorate. American Economic Review 59(3), 314–323

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.