  Traded corporations are required by law to have a majority of outside
directors on their board. This requirement allows the existence of directors
who sit on the board of two or more corporations at the same time, generating
what is commonly known as interlocking directorates. While research has shown
that networks of interlocking directorates facilitate the transmission of
information between corporations, little is known about the extent to which
such interlocking networks can explain the fluctuations of stock price returns.
Yet, this is a special concern since the risk of amplifying stock fluctuations
is latent. To answer this question, here we analyze the board composition,
traders' perception, and stock performance of more than 1500 US traded
corporations from 2007-2011. First, we find that the fewer degrees of
separation between two corporations in the interlocking network, the stronger
the temporal correlation between their stock price returns. Second, we find
that the centrality of traded corporations in the interlocking network
correlates with the frequency at which financial traders talk about such
corporations, and this frequency is in turn proportional to the corresponding
traded volume. Third, we show that the centrality of corporations was
negatively associated with their stock performance in 2008, the year of the big
financial crash. These results suggest that the strategic decisions made by
interlocking directorates are strongly followed by stock analysts and have the
potential to correlate and amplify the movement of stock prices during
financial crashes. These results may have relevant implications for scholars,
investors, and regulators.
