The business prestige: A preliminary study based on interlocks within companies

Abstract

Purpose: The literature on interlocked directorate or interlocks has proposed the presence of cross-directors as an influential factor in the prestige of a firm (Mizruchi, 1996). This theory is based on the fact that, by having multiple companies with interlocks within them, major stakeholders of the company ought to have a higher perception of prestige. The aim of this preliminary study is to present an exploratory study and suggest future research lines on this issue.

Design/methodology/approach: In a first preliminary study, we evaluate the interlocks network comprising companies belonging to the ranking established by the MERCO report in Spain for the year 2010. This is a well-known ranking of corporate reputation in Spain used in recent articles (Luna & Fernandez, 2010). For further analysis, other variables are considered as being quoted in the Spanish market benchmark index, IBEX 35, and the location of the headquarters.

Findings: Significant positive relationship was obtained between the number of directorships shared with other public companies and the perceived prestige that stakeholders perceive from the firm. Similarly, we obtain significant positive correlation between the prestige and being listed on the IBEX 35. Finally, we identified banking, construction and energy sectors as the ones that use interlocking directorates more intensively.

Research limitations: The results of this preliminary study show the viability of future studies about prestige and interlocks (Mizruchi, 1996). For the validation of the theory described in this study, it should be replicated in different regions and, with larger samples, to observe the effect that interlocks have on the perception of prestige of the company.

Practical implications / Originality/value: This is among the first studies showing the existence of a relationship between interlocks and business prestige. It highlights the importance of the composition of the boards for the perceived prestige of enterprises.