Globalizing the Boardroom - The Effects of Foreign Directors on Corporate Governance and Firm Performance

69 Pages Posted: 19 Mar 2010 Last revised: 8 Jan 2012

Ronald W. Masulis

University of New South Wales - Australian School of Business; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Cong Wang

China Europe International Business School (CEIBS)

Fei Xie

University of Delaware

Date Written: July 12, 2011

Abstract

We examine the benefits and costs associated with foreign independent directors (FIDs) at U.S. corporations. We find that firms with FIDs make better cross-border acquisitions when the targets are from the home regions of FIDs. However, FIDs also display poor board meeting attendance records, and firms with FIDs are more prone to commit intentional financial misreporting and overpay their CEOs and have lower CEO turnover sensitivity to performance. Finally, firms with FIDs are associated with significantly poorer performance, especially as their business presence in the FID’s home region becomes less important.

Keywords: Foreign Director, Board of Directors, Corporate Governance, Independent Director, Foreign Independent Director, Agency Costs, Board Monitoring, Cross-Border Acquisition, Earnings Restatement, Financial Misreporting, CEO Compensation, Board Attendance, Operating Performance, Tobin's Q

JEL Classification: G34

Suggested Citation

Masulis, Ronald W. and Wang, Cong and Xie, Fei, Globalizing the Boardroom - The Effects of Foreign Directors on Corporate Governance and Firm Performance (July 12, 2011). Journal of Accounting & Economics (JAE), Forthcoming; AFA 2011 Denver Meetings Paper; ECGI - Finance Working Paper No. 242/2009. Available at SSRN: https://ssrn.com/abstract=1572838 or http://dx.doi.org/10.2139/ssrn.1572838

Ronald W. Masulis (Contact Author)

University of New South Wales - Australian School of Business ( email )

Sydney, NSW 2052
Australia
612-9385-5860 (Phone)
612-9385-6347 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Cong Wang

China Europe International Business School (CEIBS) ( email )

Shanghai-Hongfeng Road
Shanghai 201206
Shanghai 201206
China

Fei Xie

University of Delaware ( email )

Newark, DE 19711
United States

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