Interlocking directorates and profitability : a social network analysis of fortune 500 companies

Abstract

Given the conflicting results from past research, this paper uses social network analysis (SNA) to empirically determine the relationship between interlocking directorates and corporate profitability. Specifically, it seeks to address two research questions: (1) what relationship exists between the number of director interlocks and companies' profitability? (2) what relationship exists between power within the network of interlocking directorates and companies' profitability? The dataset was drawn from 2010 Fortune 500 companies. Regression models were developed to address the two research questions. To mitigate the effects of confounding factors, three control variables, namely, size, age and sector of the companies were used. Results suggest that both interlocks and power asserted a positive linear relationship with companies' profitability. However, the control variables did not seem to influence these relationships. Moreover, prediction of companies' profitability was found to be a complex undertaking. In conclusion, this paper acknowledges a few limitations and offers suggestions for future research.