Do interlocking director networks increase systemic risk? Evidence from financial institutions in China

We investigate the impact of interlocking director networks on systemic risk. Using a sample of listed financial institutions in China from 2007 to 2023, we find that interlocking director networks significantly amplify the systemic risk. This conclusion remains robust after a series of endogeneity and robustness tests, including the double machine learning model. Additionally, we find that individual risk and asset allocation convergence are two channels through which interlocking director networks amplify systemic risk. Further analysis reveals that strong external monitoring can help mitigate the impact of interlocking director networks on systemic risk. These finds highlight the significant impact of interlocking director networks on financial institutions’ interconnectedness and offer practical implications for regulators.