The complex interconnections that define modern society are most readily visible from our Facebook, Twitter, or Linkedin networks. What is perhaps less talked about is the extent to which corporations are linked. I just started building a network of cross shareholding among Malaysia's corporations using listed company data. The map below is a preliminary visualization of the country's corporate network as of 2015. I use social network analysis (SNA) tools to partition or color the network into key connected components or communities therein. I have deliberately excluded company names but I will tell you that the biggest nodes represent the most connected shareholders including governments, fund managers, and international asset managers.
 |
| Malaysia's Corporate Network in 2015 Created Using Gephi 0.9.1 |
As the Malaysia economy has grown so has the complexity of the corporate network from few shareholders to many interlinked players. Below is a visualization using shareholding information as of 2005. It would be interesting to understand corporate Malaysia's resilience to crisis contagion as well as the extent to which financial performance can be explained by a company's location on the map. Preliminary analysis suggests that more densely connected firms tend to have superior financial performance (profitability and return on shareholders' funds) than those companies on the periphery of the network.
 |
| Malaysia's Corporate Network in 2005 Created using Gephi 0.9.1 |
So much has changed in a decade. Good or bad?
ReplyDeleteThat is the purpose of the study. Its too early to say but the working hypothesis is that it depends. If greater connectedness has increased the risk of crisis contagion, then a dense network might not be ideal. If, however, it's led to more profitable and well-resourced companies, then it might be a good strategy for funds and other investors to allocate resources towards the most connected firms.
DeleteI will be posting follow-up material as the analysis progresses.