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Mapping the Matrix: Malaysia's Corporate Network

The complex interconnections that define modern society are readily visible in our Facebook or LinkedIn networks. But what about the corporate world?

I recently began mapping the web of cross-shareholding among Malaysia's listed corporations. Using Social Network Analysis (SNA), I visualized the ecosystem to identify key "communities" and power brokers. The goal? To see if a company's position in this web predicts its financial destiny.

The State of Play (2015)

Figure 1: Malaysia's Corporate Network in 2015 (Created via Gephi)
The map above visualizes the network as of 2015. While I have excluded specific company names, the "super-nodes" (the largest circles) represent the most connected shareholders in the economy—primarily government-linked investment companies (GLICs), fund managers, and international asset managers.

A Decade of Growing Complexity

As the Malaysian economy has grown, so has the complexity of its corporate ecosystem. Compare the dense web of 2015 (above) with the visualization below, based on data from 2005.
Figure 2: The sparsely connected network of 2005

Resilience vs. Returns

The evolution from "islands" of ownership to a massive "continent" of connectivity raises two critical questions:
  1. Contagion Risk: Does this hyper-connectivity make Corporate Malaysia more vulnerable to shocks? If one central node fails, does the whole network shake?
  2. Performance: Does location matter? My preliminary analysis suggests that densely connected firms tend to have superior financial performance (higher profitability and ROE) compared to those on the periphery.
This suggests a trade-off: connectedness may boost profits during good times, but it could amplify risks during a crisis.
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Comments

  1. AnonymousMay 4, 2016 at 5:16 AM

    So much has changed in a decade. Good or bad?

    ReplyDelete
    Replies
    1. Lelo NxumaloMay 4, 2016 at 4:09 PM

      That 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.
      I will be posting follow-up material as the analysis progresses.

      Delete

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