Interlocking Director Networks and Systemic Risk in Financial Institutions
1School of Business Administration, Liaoning Technical University, Huludao, China.
Nonlinear Dynamics, Psychology, and Life Sciences
|March 31, 2026
Summary
Interlocking director networks amplify financial systemic risk via information spread and governance convergence. Stronger governance can mitigate these amplification effects, enhancing financial stability.
Area of Science:
- Financial Economics
- Corporate Governance
- Network Analysis
Background:
- Interlocking director networks are prevalent in financial institutions.
- Understanding their impact on systemic risk is crucial for financial stability.
- Existing research has not fully elucidated the mechanisms through which these networks amplify risk.
Purpose of the Study:
- To investigate the influence of interlocking director networks on systemic risk in Chinese financial institutions.
- To identify the specific mechanisms by which these networks amplify systemic risk.
- To explore the moderating role of internal and external governance on this relationship.
Main Methods:
- Social network theory and resource dependence theory were employed.
- A sample of 129 A-share listed financial institutions in China from 2009-2023 was analyzed.
- Statistical methods were used to examine network structures and their impact on systemic risk.
Main Results:
- Interlocking director networks significantly amplify systemic risk.
- Mechanisms include increased individual institution risk exposure via information transmission and governance convergence.
- Strengthened internal and external governance were found to mitigate the amplifying effect of director networks on systemic risk.
Conclusions:
- Interlocking director networks pose a significant threat to financial stability by amplifying systemic risk.
- Governance convergence and information transmission are key transmission channels.
- Enhanced corporate governance practices can serve as a crucial buffer against network-induced systemic risk.
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