Network Structure of Financial Institutions in the Philippines: Insights on Corporate Control and Competition

Ramonette B. Serafica, Aubrey Tabuga (), Madeleine Louise S. Baino and Mark Gerald C. Ruiz

No DP 2024-17, Discussion Papers from Philippine Institute for Development Studies

Abstract: This exploratory study focuses on understanding the structure of networks of financial institutions in the Philippines. The literature notes that the financial sector occupies a central position within corporate networks. More importantly, the significance of deepening understanding of the connections within the financial sector stems from its role as an intermediate sector. The financial sector is crucial because of its role in promoting efficiency in other economic sectors. In fact, this sector occupies a unique position of influence regarding how the wealth of an economy is generated and allocated. Using a network lens, the structure of interrelationships via ownership is examined to draw insights related to corporate control, competition, and financial sector development. Data from the Philippine Stock Exchange on publicly listed financial companies and their networks is utilized to distinguish between subsidiary networks, ownership networks, and networks created by board interlocks. The subsidiary network of financial companies is found to be fragmented, and the connections among members of a group are closely knit. Subsidiary networks exhibit a hub-and-spoke structure, with a parent company in the center and subsidiaries around it. This centralized structure is thought to be used by investment companies to pool assets, cut costs, and improve efficiency. Financial institutions also diversify their portfolios by owning various companies not only in the financial sector but also in other sectors. Evidence of interconnections among companies in the financial sector and between financial companies and others is found. The networks formed via interlocks of board members and officers show a high proportion of triples, suggesting ease of reaching others within a short distance—a characteristic of the small-world phenomenon. The finding of an interconnected network, nearly a single-component network, also suggests that the extent of corporate control can be broad. Comments on this paper are welcome within 60 days from the date of posting. Email publications@pids.gov.ph.

Keywords: financial netwoks; corporate control; competition; finance; ownership networks; subsidiary networks; board interlocks; Philippine financial sector; network structure; corporate governance; interlocking directorates; network analysis; network fragmentation (search for similar items in EconPapers)
Pages: 46
Date: 2024
New Economics Papers: this item is included in nep-net and nep-sea
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Persistent link: https://EconPapers.repec.org/RePEc:phd:dpaper:dp_2024-17

DOI: 10.62986/dp2024.17

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