Network structure of financial institutions in the Philippines : insights on corporate control and competition

This exploratory study is about 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 learning more deeply about the structure of connections that the financial sector has stems from its being an intermediate sector. The financial sector is such a crucial aspect because of its role in promoting efficiency in other economic sectors. In fact, this sector occupies a very special position of influence with respect to how the wealth of an economy is generated and allocated. Using the network lens, we examine the structure of interrelationships via ownership to draw insights related to corporate control, competition and financial sector development. Using data from the Philippine Stock Exchange on publicly listed financial companies and their networks, we distinguished subsidiary networks, ownership networks and networks created by board interlocks. We found that the subsidiary network of financial companies is a fragmented one and that 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 said to be used by investment companies for the purpose of pooling assets, cutting costs and improving efficiency. We likewise found that financial institutions diversify their portfolio by owning various companies not only in the financial sector but also in other sectors. This study found evidence of the interconnections among companies in the financial sector, and between financial companies and others. The networks formed via interlocks of BOD members and officers show that their connections have a high proportion of triples suggesting ease of reaching others within a short distance - a characteristic of small world phenomenon. The finding of an interconnected network, nearly one component network, also suggests that the extent of corporate control can be wide.