Econophysicists identify world’s top 10 most powerful companies

global-network

The study of complex networks has given us some remarkable insights into the nature of systems as diverse as forest fires, the internet and earthquakes. This kind of work is even beginning to give econophysicists a glimmer of much-needed insight in the nature of our economy. In a major study, econophysicists have today identified the most powerful companies in the world based on their ability to control stock markets around the globe. it makes uncomfortable reading.When it comes to complex networks, economics has always been poorly understood. That’s at least partly to do with the complexity of the networks n question. It is relatively straightforward to draw up a set of nodes representing the shareholders of major companies and draw in the links between them. This kind of analysis has shown that the control of stock markets is distributed between many nodes.

This kind of basic graphing tells you nothing about the way ownership changes as shares are bought and sold. Another important variable is the market capitalization of the companies–their size–which has an important effect on the dynamics. In theory, including these factors can give you a much greater insight not only into the ownership of these companies, but also into their control.

Now James Glattfelder and Stefano Battiston at the Swiss Federal Institute of Technology in Zurich have included these factors in a study of the control and ownership of stockmarkets in 48 countries around the world. Their results are startling.

It turns out that the insight gained from a simple network analysis –that ownership and control is distributed over large numbers of people–is entirely misleading. When other factors are included, such as the way ownership changes as shares are bought and sold, it turns out that stock markets are controlled by a very small number of  companies.

Glattfelder and Battiston have even identified the companies with the greatest power in each of the stockmarkets they study. They have even created a list of global powerbrokers, the companies that are influential in the most stock markets around the world. Here is the top 10:

  1. The Capital Group Companies
  2. Fidelity Management & Research
  3. Barclays PLC
  4. Franklin Resources
  5. AXA
  6. JPMorgan Chase & Cp
  7. Dimensional Fund Advisors
  8. Merrill Lynch & Co
  9. Wellington Management Company
  10. UBS

These are the companies that control the global stockmarket. That’s a frightening though. What it suggests is that the stability of the complex networks that make up our economy is hugely dependent on the ongoing survival of just a handful of companies.

We’re entitled to ask whether they’re up to the job. Recent experience suggests not.

Ref: arxiv.org/abs/0902.0878: The Backbone of Complex Networks of Corporations: Who is Controlling Whom?

10 Responses to “Econophysicists identify world’s top 10 most powerful companies”

  1. Joe says:

    “That’s a frightening though. What it suggests is that the stability of the complex networks that make up our economy is hugely dependent on the ongoing survival of just a handful of companies”

    That might be a bit of a leap. Looking at the network dynamics and working backward to the structure doesn’t necessarily allow you to predict how structural changes influence the dynamics. Perhaps the network would be stable across a change in the number or makeup of nodes?

    Instead of being frightening, I think this study is disheartening to many people as they realize how little they actually know about how the stock market functions.

  2. Dude says:

    Actually this makes total sense. In my opinion it also explains why the stock market tanked today (same day stimulus bill passed the senate). Any sane person (imo) should know that the stimulus bill is a good thing. But the mega-corps don’t like it because it includes a lot of support for the PEOPLE and not so much in the way of free money for the banks and tax cuts for the rich. So their reaction is to try to scare everyone by making the market tank for a bit. Just a theory but …

  3. [...] Econophysicists identify 10 most powerful companies in the world: http://arxivblog.com/?p=1195 [...]

  4. jbg says:

    a 3d animation of the first network seen above (the japanese backbone):
    http://www.youtube.com/watch?v=RLGtNPDflcw

    njoy…

  5. Mr. Brow says:

    It is natural to assume that the largest holders of securities should have control over those securities whereas the decisions to buy, hold or sell thoses securities is often made up of many individuals within the organization and as these companies are so large and diverse – there is often the case when one division of a company is buying, while another is selling and they do not cross within the institution.
    In the case of Franklin Resources – 3 different companies exist within and their management groups are said not to cross the chinese wall between them. It is additionally impossible to get ego-driven money managers to pursue the same course on any given security to control that security in any manner to drive it in any direction.
    Having been closely affiliated with 7 of the above 10 – either as a seller to or a seller of their companies securities, they know not what they are doing with individual securities. They are laughable companies, with young, inexperienced people at the helm. Take a look at the history of mismanagement at Franklin. They were so bad at one point, they had a committee of CEO’s. the last one standing turns out to be a grandson of the founder – surprise! All of these companies are driven by the collection of assets to derive a fee from. The more they have under management, they greater the fee income.
    The selling of the securities within is the driving force and are only gathered by commission/fee driven people that do not know how to manage for absolute returns. Relative to their peers and a benchmark is their only barometer. If they are close or are in the top quarter, they get the money, when they are not, they lose it.
    Take a close look and you will see that the negative flows that these companies are experiencing, are well deserved. and the share prices reflect the relative underperformance and absolute mismanagement of assets.
    These companies are a depository of underperforming assets in which the next names of the top 10 will be different than these. Rotation of assets is inevitable and the best never stay the best. In fact, you will see AXA’s sales fall flat after a product change on Feb. 17.
    They were one of the largest money raisers in 2007 and 2006 of the Franklin mutual funds within their annuities. Merrill Lynch was the top seller of the AXA annuities, UBS was also a top seller. They all sold the same stuff and are all failing as a result. The lemming factor going up and over and now down is well documented.
    More to come as the new players surface to take over their roles.
    The market is bigger than these companies.

  6. dutchkabuki says:

    Quite Naive. The issues in the paper are much better addressed from the point of “governance” versus any sort of network analysis. People really in the know, are upset that big mutual funds (the author’s top ten) do not exert enough ownership control, and instead allow corporations to be captured by ceo’s and inside boards. Instead most mutual funds are “absentee” owners, and sell their stake as soon as they don’t like the direction of the company, instead of trying to influence that direction like an owner _should_. So, if the point of the paper was “mutual funds are big” yeah, but I think capital group’s website kinda tells you that when they list $1T AUM.

    ah,, the swiss.

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  9. Adam says:

    “That’s a frightening though. What it suggests is that the stability of the complex networks that make up our economy is hugely dependent on the ongoing survival of just a handful of companies.”

    So if these 10 companies that control the global stock market go under, then they’ll just sell their assets to others (probably for a good price too), or others will just take over the market share. Also in response to “Dude” up board that posted that, “Any sane person (imo) should know that the stimulus bill is a good thing.” Really? Because logically it seems to me that the “stimulus bill”, which effectively is taking money from profitable businesses and giving it to unprofitable businesses, is counter productive for a healthy economy. I mean if I own two businesses and only one is profitable, I would be a fool, and I coule expect to soon go broke if I took the money out of the profitable business and put it into the unprofitable business.

  10. Drew Robertson says:

    these are mostly index funds…passive investors who don’t make bets. their portfolio stocks are the most liquid and easiest to sell

    better to look at 10 largest traders (as opposed to holders)….probably find big hedge funds there like SAC