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Journal of Economic Interaction and Coordination

Erschienen in:

08.09.2015 | Regular Article

Persistence in corporate networks

verfasst von: Matthias Raddant, Mishael Milaković, Laura Birg

Erschienen in: Journal of Economic Interaction and Coordination | Ausgabe 2/2017

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Abstract

We examine the bipartite graphs of German corporate boards in 1993, 1999 and 2005, focusing on their projections onto directors (the “personal” network) and onto companies (the “institutional” network). The novel feature here is our focus on the temporal evolution of the two projections. The personal networks exhibit cores of highly central directors who are densely connected among themselves, while the institutional networks show a persistent core of large corporations whose identity remains mostly the same. This results in the persistent presence of a core network of very large corporations, despite substantial turnover in the identity of directors and significant changes in Germany’s corporate governance during the investigated period. Our findings strongly suggest that core persistence originates from the board appointment decisions of the very largest corporations and is largely independent of personal destinies.

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It would appear that the work by Kogut and Walker (2001) and the much earlier study by Mariolis and Jones (1982) account for the entire international literature on the dynamics of the corporate network to date.

See http://www.boerse-frankfurt.de/en/basics+overview/indices/selection+indices for an explanation of the rules on index composition and re-adjustments. Information on the historical index composition is provided under http://dax-indices.com/DE/MediaLibrary/Document/Historical_Index_Compositions.

Some companies in our sample have a board of directors that consists of internal and external directors, as in many Anglo-Saxon countries. Their roles are similar but not identical to Vorstand and Aufsichtsrat in the traditional German system.

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Notice that our b-cores differ from so-called k-cores, which are constructed using a node’s minimum degree (see Seidman 1983). See also Bellenzier and Grassi (2014), who use a very similar methodology in an analysis of the Italian board network.

See http://www.corporate-governance-code.de/index-e.html.

Current members of the management board must not simultaneously serve on the company’s supervisory board (§ 105 AktG), but have routinely been allowed to serve as supervisory board members at other companies.

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The percentage of reconstructed ties among German companies is four to five times higher than previously observed in the US by Stearns and Mizruchi (1986). From a network core perspective, it would be interesting to clarify whether the percentage of reconstituted ties among the largest (core) corporations in the US is substantially higher than in the original Stearns and Mizruchi sample.

Imagine a director with three mandates and suppose that she is on the board of company A, which manages to place her on the board of company B for strategic reasons, e.g., to oversee A’s interests. If she also serves on the board of a third company C, we consider the link between A and B intentional, while the links AC and BC are unintentional byproducts.

These and other figures are easily calculated from the transition matrices in the “Appendix”.

All three measures of centrality exhibit a slight decrease in average centrality between 1993 and 1999, and an increase between 1999 and 2005, as reported in Table 3. This is in line with the visual inspection of the network structure in Fig. 1, which shows an increasing number of peripheral nodes in 1999, and denser cores in 2005.

The Laplacian is a special form of the adjacency matrix of the network, where the trace of the Laplacian corresponds to the number of links between nodes.

The benefit of this method is that PCA is more parsimonious and transparent than community detection algorithms, and perhaps also better known among social scientists. The foundations of our subsequent analysis can be found in Reichardt (2009).

If the best score of a firm is not greater than the mean plus half a standard deviation of scores within a group, we do not match the firm to the group. The exact tuning of this threshold is of course arbitrary: choosing a much larger threshold level leads to smaller but more homogeneous groups (some firms might not be matched at all because of a single differing link), while a much lower threshold will inflate groups by matching peripheral firms that only show marginal similarity in the link pattern. Since neither group turns out to be large compared to the entire set of firms, our quantile-approach is quite robust, and the exact value of the threshold is not crucial for the overall results. In larger datasets, this parameter could certainly be endogenized.

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Titel: Persistence in corporate networks
verfasst von: Matthias Raddant
Mishael Milaković
Laura Birg
Publikationsdatum: 08.09.2015
Verlag: Springer Berlin Heidelberg
Erschienen in: Journal of Economic Interaction and Coordination / Ausgabe 2/2017
Print ISSN: 1860-711X
Elektronische ISSN: 1860-7128
DOI: https://doi.org/10.1007/s11403-015-0165-5

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