A Multinational Study of Foreign Directors on Non-U.S. Corporate Boards

Abstract:     
Using a panel data set of more than 60,000 firm-years from 80 non-U.S. countries, we examine the determinants of the presence of foreign independent directors (FIDs) on corporate boards, as well as the impact such directors have on firm performance. Within countries, we find that larger firms, with significant foreign operations, and an international shareholder base, are more likely to have FIDs. Across countries, we find that FIDs are more likely to be found in countries with a lower supply of qualified potential directors. These findings suggest that foreign expansion and operation, as well as the need to tap a broader talent pool than is available locally, are the key determinants of appointing FIDs. After accounting for potential endogeneity we find that, on average, FIDs are associated with lower operating performance. However, the relation between FIDs and performance is less negative in firms with foreign sales, and when the foreign director comes from a country that is geographically close, has a similar culture and language, or has better developed capital markets and higher quality legal institutions than the host country.

Number of Pages in PDF File: 48

Keywords: boards of directors, international governance, corporate governance

JEL Classification: G34, G30

working papers series