Interlocking directorates and firm performance: Evidence from China

Abstract

Using a comprehensive manually compiled dataset of Chinese A-share listed companies, we construct an interlocking directorate network to examine its influence on firm performance and investigate the underlying economic mechanisms involved. Our findings reveal that the propensity for firms to share directors increases as the interlocking directorate network exhibits rapid growth in both size and density from 2007 to 2022. Further investigation demonstrates that the network exerts a significant positive impact on the performance of firms characterized by a higher degree of interlocking directorate connectivity and those occupying a more central position within the network. To address potential endogeneity concerns, we exploit the 2013 introduction of government official director resignation policy as a plausibly exogenous shock to the interlocking directorate network and show that the departure of interlocking directors adversely affects short-term firm performance, with a more pronounced impact on non-state-owned enterprises. These results underscore the pivotal role of interlocking directors in facilitating information exchange and resource sharing.