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The Advisory Role of Foreign Directors in U.S. Firms

54 Pages Posted: 16 Mar 2012 Last revised: 22 Apr 2014

Lalitha Naveen

Temple University

Naveen D. Daniel

Drexel University - Department of Finance

John J. McConnell

Purdue University

Date Written: January 29, 2013

Abstract

We study the role of foreign directors in U.S. firms. We conclude that foreign directors, especially those from countries that are dissimilar to the U.S. in terms of business environment (i.e., dissimilar directors), are chosen by multinational corporations (MNCs) to provide advice, and this advice is valuable. We measure director dissimilarity along the dimensions of legal regime, language, trust, and religion. Our conclusion is supported by two findings. (i) Firms with operations in countries that are dissimilar to the U.S. in terms of business environment are more likely to choose dissimilar directors. (ii) The average announcement period return to the appointment of foreign directors is significantly positive, and is due to appointments by MNCs, and within MNCs, to dissimilar directors. Analysis using Tobin’s q leads to similar inferences.

Keywords: Board advising, Directors, Board characteristics, Corporate governance, Multinational firm

JEL Classification: G32, G34, K22

Suggested Citation

Naveen, Lalitha and Daniel, Naveen D. and McConnell, John J., The Advisory Role of Foreign Directors in U.S. Firms (January 29, 2013). Available at SSRN: https://ssrn.com/abstract=2023420 or http://dx.doi.org/10.2139/ssrn.2023420

Lalitha Naveen (Contact Author)

Temple University ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States
215-204-6435 (Phone)

Naveen D. Daniel

Drexel University - Department of Finance ( email )

LeBow College of Business
Philadelphia, PA 19104
United States
215-895-5858 (Phone)
215-895-2955 (Fax)

HOME PAGE: http://lebow.drexel.edu/Faculty/DanielN

John J. McConnell

Purdue University ( email )

MGMT, KRAN
403 West State St.
West Lafayette, IN 47907-2056
United States
765-494-5910 (Phone)
765-494-7863 (Fax)

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