Board networks and Russian companies performance: The results of the social network analysis

Abstract

Despite the importance of personal ties in the Russian economy, established by researchers, there is still no empirical evidence of the effect that interlocked boards of directors have on company performance. The paper uses the Social Network Analysis technique to provide in-depth study of a company’s position in a network formed by formal connections among board members. The calculated network metrics are used to determine their impact on the company’s financial results. Empirical analysis is provided using data on Russian companies whose shares are included in the Moscow Exchange Broad Market Index for the period from 2014 to 2018. We use return on assets (ROA) and Tobin’s Q as metrics of a company’s performance. The results show that a company’s position in the network, described by degree centrality and closeness centrality, negatively affects the company’s return on assets. At the same time, centrality does not affect Tobin’s Q. An analysis of the specific for the Russian economy features of companies revealed the peculiarities of the influence of a company’s position in the network on the results of companies in the energy and oil and gas industries, as well as companies with a share of directors with experience in government bodies.

Keywords:

boards of directors, corporate governance, value, Russian companies, social networks, multidirectorship