Concentrated Control in Global Level

Jon Aldous 기자 승인 2023.11.28 14:55 의견 0

Transnational corporations (TNCs) significantly impact global market competition and financial stability. Prior research focused on small national samples without a global assessment methodology. A recent study, however, has delved into the international ownership network's architecture and calculated the control each global player holds. It revealed that TNCs form a vast 'bow-tie' structure, with a substantial amount of control flowing to a small, closely interconnected core of financial institutions. This core, essentially an economic “super-entity,” presents critical issues for both researchers and policymakers.

We explore the extent of control that economic actors, including TNCs, exert over TNCs' value (operating revenue) and how this control is concentrated. Contrary to expectations based on public stock market accessibility, control is found to be more unevenly distributed than wealth. A small fraction of top holders command a disproportionate amount of control over TNCs' value, far exceeding the concentration seen in income distribution across households, firms, or the revenue of top corporations like those in the Fortune 1000.

The network is characterized by numerous small components, but the largest component (comprising 3/4 of all nodes) includes all the top TNCs by economic value, accounting for 94.2% of total TNC operating revenue. Two key topological features stand out:

The prevalence of cycles of mutual cross-shareholdings, which are common in corporate governance for reasons like anti-takeover strategies and risk sharing. This setup, however, can diminish market competition.

The dominant strongly connected component (SCC) within the largest connected component mirrors a bow-tie structure. Interestingly, the SCC, or core, is relatively small compared to other sections of the bow-tie, with the out-section being significantly larger. This core is also densely interconnected, with firms on average having ties to 20 others, and about 3/4 of ownership within the core remains under its control.

Comparing national ownership networks, only a few countries exhibit bow-tie structures. Notably, in Anglo-Saxon countries, the main SCCs are relatively large compared to the overall network size, highlighting significant regional differences in corporate network structures.

While the high concentration of control in the hands of a few top holders is clear, understanding their interconnectedness requires an analysis combining network topology with control ranking. This approach provides a complete picture of control structure.

The study reveals that a TNC's position in the network significantly influences its control power. For example, a TNC located in the core has a much higher likelihood of being among the top holders compared to those in the inner section of the network.

Despite its relatively small size, the core of the network wields a substantial portion of total control. Specifically, a significant fraction of the control over the global economic value of TNCs is in the hands of a small group of TNCs within the core, which almost entirely controls itself. This group, predominantly composed of financial intermediaries, essentially forms an economic "super-entity" within the global corporate network.

The concentration of control raises crucial questions about global financial stability. Financial institutions often engage in multiple financial contracts, like lending or credit derivatives, with various other entities. This network of contracts allows for risk diversification but also creates vulnerability to contagion due to interconnectivity. The lack of public information on these contracts adds to their complexity. However, ownership ties often correlate with financial relationships, suggesting that the ownership network might mirror the financial network.

Recent studies indicate that highly interconnected financial networks are susceptible to systemic risks. In stable times, these networks appear robust, but they can lead to simultaneous distress among firms during financial crises, as observed during recent economic downturns. This "knife-edge" characteristic of the financial network is a crucial aspect of understanding the dynamics of global economic stability.

The interconnections among Transnational Corporations (TNCs) in the core, especially those with overlapping business areas, might lead to the formation of blocs, potentially inhibiting market competition. This core's existence in the global market is a novel discovery, and its potential to act as a bloc has not been conclusively demonstrated or refuted by scientific studies. Nonetheless, evidence at the national level shows that even minor cross-shareholding structures can impact competition in sectors like airlines, automobiles, steel, and finance. Antitrust authorities, like the UK's Office of Fair Trade, are vigilant about complex ownership structures within their jurisdictions. The recent availability of international datasets and network analysis tools could explain why this global phenomenon remained undetected for so long.

Data Integration Across Diverse Legal Systems: While merging ownership data from countries with varied legal frameworks might raise questions, research indicates that investor protection levels are the only significant determinant of ownership relations across different nations. There are works on control concentration that remain consistent across various models used to deduce control from ownership.

Control Exerted by Financial Institutions: Theoretical perspectives often suggest that financial institutions don't typically invest in equity shares to gain control. However, empirical evidence indicates otherwise. Studies demonstrate that globally, top holders, particularly financial institutions, are likely in a position to exert substantial control, be it through formal means like voting at shareholder meetings or through informal negotiations.

Empirically, identifying a bow-tie structure with a small yet influential core in complex networks is groundbreaking. Such structures might exist in other networks where mechanisms like "rich-get-richer" are active, though the bow-tie formation isn't solely a product of preferential attachment based on degree. The densely connected nature of the core could be seen as an extension of the "rich-club phenomenon," with control playing a pivotal role in place of network degree.

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