[I came across this situation recently, and am not sure how
it works – so thought someone experienced with SEO can help. If I get a link on a high PR page (say, a PR-7) which has 40 links, 35 of which are to internal pages on the same domain, how does the weight of the PR-7 page get distributed? Will ALL 40 links from the page share the weight? Or is it distributed ONLY to ‘outbound’ links (which means the 5 links to outside domains)? All 40 links are do-follow.]
According to Google’s published whitepaper on their PageRank algorithm, the PR is equally divided by and distributed to each unique outbound URL. Internal and external links share equal value. This is one reason that the internal link structure is so important to effective SEO.
Matt Cutts has discussed this topic on numerous occasions, including videos on GoogleWebmasterTools, his blog, and interviews with industry bloggers. While he has been a bit cagey in his inferences, I took it to mean that linking out to external websites does not bleed your PageRank away from your website as much as it did in the past. He seems to be inferring that outbound linking, to external websites, helps your own pages in some way.
From that testing that I have done, linking out doesn’t seem to improve your PR score, however, it does seem to have a very positive effect on SERP ranking, provided you are linking to reputable websites. I speculate that linking out to reputable pages improves your trust rank score. I have heard Google engineers refer to this as “Author Reputation”.
It’s well known that websites that link out to lots of reputable pages in a well-organized fashion take on “hub” site status and they tend to rank very well in SERP. However, a hub site isn’t going to necessarily bump your PR score.