[Excerpt] This paper studies reciprocal interlocks of boards of directors of large firms where an employee of firm A sits on firm B's board and at the same time an employee of firm B sits on firm A's board. The study of Boards of Directors by those in economics and finance is not new. In fact, Dooley (1969) writes of interlocking directorates, but his definition is different in that he presents evidence of interlock where "at least one director ... sat on the board of at least one other of the largest companies". Books by Mizruchi (1982) and Pennings (1980) as well as many articles, for example Bearden and Mintz (1985), Bunting and Barbour (1971) and Mintz and Schwartz (1981) discuss interlocking boards in much more detail from a sociological perspective. Mizruchi and Stearns (1988) study the longitudinal formation of interlocking directorates using a small sample of firms.
This paper uses data from the early 1990s to explore reciprocal interlocks and the effects they have on firms. There are several goals, including documenting the frequency of interlocks and the characteristics of boards that interlock, exploring several different definitions of reciprocal interlock, examining whether interlocks are symptomatic of agency problems, and whether interlocks have an effect on managerial pay.