Interlocking directorates and financial performance : an empirical analysis of Pakistani business groups

Abstract

This study explores the role of interlocking directors of Pakistani business groups and financial performance. In panel regression the effect of vertical interlocks, intra-group interlocks, leverage and sales growth are tested. Through empirical testing it is argued that vertical interlock is statistically significant and positive but intra-group interlock is statically insignificant and negative. The result suggests that vertical interlocking directors are playing key role to increase the financial performance of group member firms. A vertical interlocking director increases financial performance of group firm by supporting in coordination and promotion of transactions between group member firm and holding firm. The sample consists of 55 public limited firms listed at Pakistan Stock Exchange (PSX) and covering period is 2011 to 2015.