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

66 Pages Posted: 18 Mar 2020

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 Instituto Universitario de Lisboa

Dhananjay Nanda

University of Miami - Department of Accounting

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Date Written: March 18, 2020

Abstract

We examine whether similarities in legal, sociological, and cultural characteristics between countries (country-pair homophily) affect foreign director appointments. Our results from estimating a gravity model, which includes economic and geographic country characteristics, indicate that country-pair homophily is associated with foreign director appointments to corporate boards. Country-pair homophily plays a more significant role in the foreign director market than in other cross-border exchange, such as trade, migration, and foreign investment, consistent with homophily being more important in bilateral voluntary human exchange. We use the international IFRS adoption and the gender-quota adoption in Norway as regulatory interventions to assess the role of country-pair homophily in new foreign director appointments. We find that both events led firms to appoint directors from countries that were, prior to the regulation, less institutionally, socially and culturally similar, attesting to the importance of homophily in foreign director appointments. Overall, we identify an impediment to the effectiveness of foreign director appointments driving global governance practice convergence.

Keywords: corporate governance; foreign directors; gravity model; homophily; culture; IFRS; Gender quota

JEL Classification: F16, F66, G30, G34, J60

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 18, 2020). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2020-20. Available at SSRN: https://ssrn.com/abstract=3556568 or http://dx.doi.org/10.2139/ssrn.3556568

John Manuel Barrios (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Pietro A. Bianchi

Florida International University (FIU) ( email )

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

Helena Isidro

ISCTE-IUL Instituto Universitario de Lisboa

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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