Boards of a Feather: Homophily in Foreign Director Appointments Around the World

49 Pages Posted: 21 Oct 2015 Last revised: 31 Mar 2019

See all articles by John Manuel Barrios

John Manuel Barrios

University of Chicago - Booth School of Business

Pietro A. Bianchi

Florida International University (FIU)

Helena Isidro

ISCTE-IUL

Dhananjay Nanda

University of Miami - Department of Accounting

Date Written: March 29, 2019

Abstract

We examine how shared institutional, sociological and cultural characteristics between countries affect director appointments. We document that shared country-level characteristics explain a large variation in the likelihood of appointing foreign directors to firm boards. In our empirical analyses, we use a gravity model and find that director appointments between country-pairs increase in the countries’ economic significance, geographic and cultural proximity. We show that homophily plays a crucial role in director appointments across countries and is suggestive of a potential friction in the global convergence of governance practices. Moreover, we assess how homophily shapes the relation between foreign director appointments and firm value by exploiting an exogenous shock to the demand for corporate directors resulting from the staggered adoption of gender quota rules. We find that after the adoption of gender quota rules homophily in new director appointments harms firm value. Our findings suggest that homophily in the director market is a potential barrier in the appointment of directors.

Keywords: foreign directors, gravity model, corporate governance

JEL Classification: F20, F22, G15, G34

Suggested Citation

Barrios, John Manuel and Bianchi, Pietro A. and Isidro, Helena and Nanda, Dhananjay, Boards of a Feather: Homophily in Foreign Director Appointments Around the World (March 29, 2019). Available at SSRN: https://ssrn.com/abstract=2676834 or http://dx.doi.org/10.2139/ssrn.2676834

John Manuel Barrios

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Pietro A. Bianchi (Contact Author)

Florida International University (FIU) ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

Helena Isidro

ISCTE-IUL ( email )

Av. das Forças Armadas
Lisboa, 1649-026
Portugal

Dhananjay Nanda

University of Miami - Department of Accounting ( email )

Coral Gables, FL 33146-6531
United States

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