The economic effect of interlocking directorates in Italy: new evidence using centrality measures

We use measures of vertex centrality to examine interlocking directorates and their economic effects in Italy. We employ four centrality measures: degree, eigenvector centrality, betweenness, and flow betweenness. Using these measures, we document the existence of a ranking among Italian firms, with a few family firms and financial firms that occupy the network's central positions. Surprisingly, we find that some of the largest companies in Italy by market capitalization do not have a central position in the network. Network centrality negatively affects firm value. This result is robust to the use of both stock market and operating performance measures, and several controlling variables. Once we control for the endogeneity of the relationship between centrality and busyness, we find that directors become busy, i.e. hold multiple directorships, in order to increase their firm's centrality. Finally, we find a positive relationship between eigenvector centrality and stock price synchronicity.