The Diffusion of Financialization Through Interlocking Directorates

• In Event: 4255 - Section on Economic Sociology Roundtables (1 hour)
  In Refereed Roundtable 60min: 3. Finance

Abstract

This paper identifies how directorate interlocks contributed to the proliferation of financialization. Here, financialization refers to US corporations increasingly accumulating financial assets and decreasingly accumulating capital stock. This shift away from investment in productive assets was ubiquitous across all industries. Previous explanations for the rise of financialization have centered on financial deregulation and the concurrent concentration of power in the hands of institutional investors. What is unknown, however, is the role that boards of directors played in diffusing financialization across corporations and industries. By linking ISS Directors, Compustat Executive, and Compustat Fundamentals datasets, I find that interlocking directorates exerted an isomorphic force on corporations. This force pushed corporations to financialize similarly to the corporations in their interlocks. Specifically, the presence of more-financialized corporations in interlocks induced less-financialized corporations to acquire more financial assets.

Author

• Colin Birkhead, Duke University