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Decision Spread In The Corporate Board Network

Author

Listed:
  • STEFANO BATTISTON

    (Laboratoire de Physique Statistique, ENS, 24 rue Lhomond, 75005 Paris, France)

  • GÉRARD WEISBUCH

    (Laboratoire de Physique Statistique, ENS, 24 rue Lhomond, 75005 Paris, France)

  • ERIC BONABEAU

    (Icosystem Corp., 545 Concord Av. Cambridge, MA 02138, USA)

Abstract

The boards of large corporations sharing some of their directors are connected in complex networks. Boards are responsible for corporations' long-term strategy and are often involved in decisions about a common topic related to the belief in economical growth or recession. We are interested in understanding under which conditions a large majority of boards making the same decision can emerge in the network. We present a model where board directors are engaged in a decision-making dynamics based on "herd behavior." Boards influence each other through shared directors. We find that imitation of colleagues and opinion bias due to the interlock do not trigger an avalanche of identical decisions over the board network, whereas the information about interlocked boards' decisions does. There is no need to invoke global public information, nor external driving forces. This model provides a simple endogenous mechanism to explain the fact that boards of the largest corporations of a country can, in the span of a few months, make the same decisions about general topics.

Suggested Citation

  • Stefano Battiston & Gérard Weisbuch & Eric Bonabeau, 2003. "Decision Spread In The Corporate Board Network," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 6(04), pages 631-644.
    • Handle: RePEc:wsi:acsxxx:v:06:y:2003:i:04:n:s0219525903001109
    DOI: 10.1142/S0219525903001109
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    Cited by:

    1. Evandro de Nez & Paulo Roberto da Cunha, 2018. "Influence of board interlocking in the selection of the audit firm on the mandatory caster," Contaduría y Administración, Accounting and Management, vol. 63(2), pages 5-6, Junio.
    2. Stefania Vitali & Stefano Battiston, 2014. "The Community Structure of the Global Corporate Network," PLOS ONE, Public Library of Science, vol. 9(8), pages 1-13, August.
    3. Adão, Luiz F.S. & Silveira, Douglas & Ely, Regis A. & Cajueiro, Daniel O., 2022. "The impacts of interest rates on banks’ loan portfolio risk-taking," Journal of Economic Dynamics and Control, Elsevier, vol. 144(C).

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