The Small World of Canadian Capital Markets: Statistical Mechanics of Investment Bank Syndicate Networks, 1952–1989

We investigate the structure of investment bank syndicate networks in Canada. We consider two banks to be connected if they have participated in an underwriting syndicate together and construct networks of such connections using data drawn from the Record of New Issues (Financial Data Group). We show that these interfirm networks form "small worlds", in which banks are both locally clustered and globally connected by short paths of intermediate banks, and are "scale free", in which the connectivity of the network is highly skewed and with most banks tied to a small set of prominent banks. We examine changes over time in the network's small-world and scale-free properties, and demonstrate their theoretical and practical implications for the structure and operation of Canadian capital markets by linking these properties to the network's cliquey-ness, resilience, and speed of information transmission.