Foreign Independent Directors and the Quality of Legal Institutions

Journal of International Business Studies, forthcoming

41 Pages Posted: 20 Mar 2012 Last revised: 16 Sep 2016

See all articles by Mihail K. Miletkov

Mihail K. Miletkov

University of New Hampshire - Paul College of Business and Economics

Annette B. Poulsen

University of Georgia - Department of Banking and Finance

M. Babajide Wintoki

University of Kansas - School of Business

Date Written: September 15, 2016

Abstract

Foreign directors can affect firm value through their advising and monitoring functions. However, the demand for these directors, as well as their effect on firm performance is likely to be influenced by firm- and country-level characteristics. In a large sample of non-U.S. firms, we find that foreign directors are more likely to be associated with firms that have more foreign operations and an international shareholder base, and firms that are located in countries with a limited supply of potentially qualified domestic directors -- countries with a smaller, less well-educated populace and lower levels of capital market development. We also find that the association between foreign directors and firm performance is more positive in countries with lower quality legal institutions, and when the director comes from a country with higher quality legal institutions than the firm's host country. Our study highlights the importance of considering national demographic factors and levels of capital market development when modeling the supply and demand for foreign directors, and also underscores the importance of institutional quality in the foreign director's home and host country when assessing the effect of that director on firm performance.

Keywords: Board of Directors, Institutional Context, Foreign Directors, Incorporating Country Variables, Multiple Regression Analysis, Agency Theory, Institutional Theory

JEL Classification: G34, G30

Suggested Citation

Miletkov, Mihail K. and Poulsen, Annette B. and Wintoki, Modupe Babajide, Foreign Independent Directors and the Quality of Legal Institutions (September 15, 2016). Journal of International Business Studies, forthcoming. Available at SSRN: https://ssrn.com/abstract=2024655 or http://dx.doi.org/10.2139/ssrn.2024655

Mihail K. Miletkov

University of New Hampshire - Paul College of Business and Economics ( email )

10 Garrison Ave
Durham, NH 03824
United States

Annette B. Poulsen (Contact Author)

University of Georgia - Department of Banking and Finance ( email )

Terry College of Business
Department of Finance
Athens, GA 30602-6253
United States
706-542-4450 (Phone)

HOME PAGE: http://www.terry.uga.edu/directory/profile/apoulsen/

Modupe Babajide Wintoki

University of Kansas - School of Business ( email )

1300 Sunnyside Avenue
Lawrence, KS 66045
United States

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