Interlocking directorates, access to credit, and business performance in Chile during early industrialization

How do businessmen counteract credit constraints when the financial market does not provide adequate external financing? Based on novel primary corporate data, network techniques and regression analysis, we explore the role of interlocking directorates with banks as a way for companies to face this limitation in early twentieth century Chile. Since both linkages and credit were unregulated, this setting provides us with a quasi-natural laboratory to test the role of interlocking directorates as a device for dealing with credit constraints. The paper finds that firms connected to banks had better access to credit as reflected in higher leverage ratios, had higher valuations, and better chances of surviving. These facts show that business networks, through interlocking directorates, can play a valuable role for companies in dealing with an environment of financial constraints.