Transporting Transparency: Director Foreign Experience and Corporate Information Environment

Abstract

Using hand-collected data and exploiting a natural experiment in China, we show that directors with foreign experience improve corporate transparency in emerging markets. The positive effect of these directors manifests itself if their experience originates from countries with high disclosure quality, if they reach a critical mass at the board, or if they serve on the audit committee. When exploring potential channels, we find that earnings transparency and voluntary disclosure increase after firms hire directors with foreign experience. Furthermore, once directors without such experience begin interacting with these savvy individuals, they are more likely to dissent on management proposals; transparency also propagates to other firms with which they hold board seats. These findings highlight the role of board diversity in shaping transparency and facilitating governance transfer within boardrooms and across firms.

Keywords: Foreign experience, corporate transparency, board of directors, board diversity, returnees, international human capital