The Impact of Interlocking Directorates on Firm Value: Empirical Evidence from KOSDAQ companies in Korea

Purpose: This study aims to analyze the impact of interlocking directorates on firm value, with a focus on KOSDAQ- listed companies. Specifically, it seeks to determine how interlocking directorates of inside and outside directors differentially affect firm value. Design/methodology/approach: Interlocking directorates are defined as situations where a single director serves on the boards of two or more companies. A regression analysis was conducted using a dataset of 6,436 firm-year observations from 2018 to 2022. To enhance the reliability of the results, the study distinguishes between inside and outside directors and enhances the analysis by employing a panel approach. Ultimately, a balanced panel was constructed to empirically analyze the impact of interlocking directorates on firm value. Findings: The findings indicate that an increase in interlocking directorates of inside directors is significantly asso-ciated with a decrease in firm value, while an increase in interlocking directorates of outside directors leads to a significant increase in firm value. These results suggest that the impact of interlocking directorates may vary depending on the characteristics of the directors. Consistent results were observed through a balanced panel analysis. However, in the case of interlocks with KOSPI-listed firms, only inside directors’ interlocks were found to have a significant effect on firm value. Research limitations/implications: This study focuses solely on interlocking directorates and does not consider other types of personal networks, such as regional or educational ties. Additionally, it faced limitations in securing a sufficient sample size for interlocking directorates with KOSPI-listed firms for analysis. Originality/value: This study provides critical empirical evidence on the effects of interlocking directorates in KOSDAQ-listed firms. It adds to existing research on interlocking directorates in the KOSPI market by demonstrat-ing that similar effects are observed in the KOSDAQ market, offering valuable insights for the decision-making processes of KOSDAQ companies and their stakeholders.