The Role of Corporate Board Structure in Attracting Foreign Investors

45 Pages Posted: 14 Apr 2014 Last revised: 4 Jul 2014

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: March 27, 2014

Abstract

A long-recognized phenomenon in capital markets is the underinvestment in foreign equity securities, known as equity home bias. Our study examines the effect of board independence on the firms’ ability to attract foreign equity capital. After accounting for potential endogeneity, we document that U.S. and non-U.S. foreign investors exhibit a strong preference for firms with more independent corporate boards. Further, our analysis indicates that the positive relation between board independence and foreign ownership is significantly stronger in countries with less developed legal institutions and poor external protection of investor rights. We suggest that it is in these countries that firm-determined characteristics such as independent boards can be most beneficial in attracting capital. We also find that institutional investors are more responsive to the impact of independent corporate boards than are other types of investors.

Keywords: Equity home bias, Foreign ownership, Board structure, Board independence, International corporate governance

JEL Classification: G34, G38, O1, K2, K4

Suggested Citation

Miletkov, Mihail K. and Poulsen, Annette B. and Wintoki, Modupe Babajide, The Role of Corporate Board Structure in Attracting Foreign Investors (March 27, 2014). Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2424327

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

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 (Contact Author)

University of Kansas - School of Business ( email )

1300 Sunnyside Avenue
Lawrence, KS 66045
United States

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