The Small World of BAnking in BEnelux - BABE

Coordinating Institution: Université du Luxembourg
From: 01/05/2009
To: 30/04/2011
Budget: 242,000.00€
Contact(s): Jonard Nicolas

Summary

The project analyzes board membership and ownership networks. It aims at understanding (i) how these networks are structured and operate; (2) the extent to which they serve as media for the diffusion of corporate governance practices (board size, share of outside directors, frequency of board meetings, manager duality, etc.) and strategic decisions (how acquisitive a firm is, how it responds to takeover threats, what stock market it lists on, how much risk it takes and to what extent it engages in collusive behavior, etc.) ; and (3) how the positions of network actors affect their performance.

Through overlapping directors or shareholders (directors with multiple directorship or diversified shareholders) behaviors and strategies diffuse in a contagion-like fashion. Thus firms’ choices of corporate governance practices and strategies are (to some extent at least) affected and explained by the social networks they are embedded in. Understanding the characteristics of these networks and how a firm’s network position affects its performance are thus necessary. To reach the above objectives, the project uses a mix of empirical analysis and modeling approaches. Empirically, the focus will be on the banking and finance industry in the 3 Benelux countries: Luxembourg, Belgium and the Netherlands.

Patterns identified there will be compared with those in countries with different national systems of corporate governance and traditions of capitalism. The project will also compare the financial and non-financial sectors, to detect similarities and differences in these networks across different industries. The project will do this over a significant number of years, to see whether changes have taken place. Then the project will analyze how actor (bank, director, shareholder) position and actor performance interact, using theories of social capital and the corporate governance literature. The project will also design a microeconomic model of board formation consistent with the patterns identified in the data. Board membership will be endogenized, and the diffusive properties of the resultant networks will be studied