File:The Network of Global Corporate Control.pdf

Network analysis of the structure of global corporate interleaved ownerships and revenues.

 paper  by Stefania Vitali, James B. Glattfelder, Stefano Battiston dated 2011/10/26

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Subjects: Globalisation, Corporate power, Tax haven, Billionaire
Source: PLOS One (Link)


Wikispooks Comment

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An analysis of the relationships between 43,000 transnational corporations has identified a relatively small group of 147 companies (out of 30 million economic actors in the 2007 Orbit database) with disproportionate power over the global economy. Connectedness clusters over time and money flows towards the most highly connected members, for 'business reasons'. These findings not only contradict common book learning of how markets should behave, it has also implications for social power structures: although they represented 20 per cent of global operating revenues, a core of 1318 TNCs appeared to collectively own through their shares the majority of the world’s large blue chip and manufacturing firms – the “real” economy – representing a further 60 per cent of global revenues.
See Also

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The author's video presentation of the paper

“Revealed – the capitalist network that runs the world.” New Scientist, October 24, 2011.

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Abstract

The structure of the control network of transnational corporations affects global market competition and financial stability. So far, only small national samples were studied and there was no appropriate methodology to assess control globally. We present the first investigation of the architecture of the international ownership network, along with the computation of the control held by each global player. We find that transnational corporations form a giant bow-tie structure and that a large portion of control flows to a small tightly-knit core of financial institutions. This core can be seen as an economic ‘‘super-entity’’ that raises new important issues both for researchers and policy makers

Appendix

The Authors provide supporting information to the study, including Acronyms and abbreviations, Data and TNC Network Detection, Network Control, Degree and Strength Distribution Analysis, Connected Components Analysis, Bow-Tie Component Size, Strongly Connected Component Analysis, Network Control Concentration and Additional Tables. download pdf

Definition of "Control"

One meaning of control in the corporate finance literature is the frequency by which a shareholder is able to influence the firm’ strategic decision during the official voting [12]. Differently, in this work, by control we mean how much economic value of companies a shareholder is able to influence. Moreover, we did not limit our focus on the control of a shareholder of a single firm. Instead, we look at the control each shareholder has over its whole portfolio of directly and indirectly owned firms. As a result, the shareholders with a high level of control are those potentially able to impose their decision on many high-value firms. The higher a shareholder’s control is, the higher its power to influence the final decision. In this sense, our notion of control can be related to Weber’s definition of “power”, i.e. the probability of an individual to be able to impose their will despite the opposition of the others [13].

Control of Financial Institutions

90% of the top 50 of the 147 core companies that hold disproportionate power belong to the financial sector according to Table S1 of the Appendix (industry standard classification system (NACE) codes starting with 65xx,66xx,67xx).

Top Control Holders

Table S1. Top 50 control-holders. Shareholders are ranked by network control (according to the threshold model, TM).

Green: financial sector (FS). Red: strongly connected component (SCC). Set of firms in which every member owns directly and/or indirectly shares in every other member.

* Lehman still existed in the 2007 dataset used