Breaking “bad” links: Impact of Companies Act 2013 on the Indian Corporate Network

Abstract

Board interlock networks are known to exhibit concentration of influence by a small group of elites. In this paper, we study a policy intervention aiming to curb this influence. We analyze the evolution of Indian board interlocking network from 2008 to 2016, a period that covers pre- and post-enactment of government regulation (Companies Act, 2013) limiting the number of directorships held by a single director. We utilize this enactment as an exogenous shock to analyze its effects on architecture of the network. To quantify the changes in cohesiveness, we extract the core-periphery structure in terms of the k-cores of the network and study its evolution over the years. Impacts of the regulation are strikingly demonstrated by fracture of the innermost core of the pre-regulation period into two new cores in the post-regulation period. At the macroscopic level, we find substantial changes in the degree distribution as the network became more egalitarian in terms of connectivity from an erstwhile highly unequal degree distribution. While the actual degree and coreness of companies had undergone substantial changes, we find that relative ranks in terms of degree or coreness of individual companies were very persistent. Empirically, we find that the same social and economic factors that determine the degree/coreness of a company before and after the regulation. We conclude that the regulation reduced concentration of elite control through changes in the core-periphery organization and degree distribution, while mobility of the companies across the network was low and stable throughout the entire period.