Backbone of complex networks of corporations: The flow of control

TL;DR

This paper introduces a methodology to extract the backbone of complex flow networks, revealing how control and wealth are distributed across national markets through cross-country ownership network analysis.

Contribution

It presents a novel network backbone extraction method that incorporates link weights, directions, and node properties, applied to global corporate ownership networks.

Findings

Control is dispersed among many shareholders in Anglo-Saxon countries.

Control is highly concentrated globally in a few shareholders.

European countries show the opposite control distribution pattern.

Abstract

We present a methodology to extract the backbone of complex networks based on the weight and direction of links, as well as on nontopological properties of nodes. We show how the methodology can be applied in general to networks in which mass or energy is flowing along the links. In particular, the procedure enables us to address important questions in economics, namely, how control and wealth are structured and concentrated across national markets. We report on the first cross-country investigation of ownership networks, focusing on the stock markets of 48 countries around the world. On the one hand, our analysis confirms results expected on the basis of the literature on corporate control, namely, that in Anglo-Saxon countries control tends to be dispersed among numerous shareholders. On the other hand, it also reveals that in the same countries, control is found to be highly concentrated at the global level, namely, lying in the hands of very few important shareholders. Interestingly, the exact opposite is observed for European countries. These results have previously not been reported as they are not observable without the kind of network analysis developed here.