Foreign Ownership Diversity and Board Diversity

Abstract

This paper investigates a novel mechanism through which foreign institutional investors influence corporate governance. We construct multidimensional diversity measures and examine the effect of foreign ownership diversity on board diversity using U.S. firm-level data between 2001 and 2019. Empirically, we provide a causal inference that foreign ownership diversity positively affects board diversity, while domestic ownership diversity is negatively or insignificantly associated with board diversity. Furthermore, we show that firms with greater board diversity exhibit more patent counts. Overall, our paper suggests board diversity as a new economic channel through which foreign institutional investors improve firm value.

Keywords: Foreign ownership diversity, Board diversity, Multidimensional diversity measures, corporate governance, Firm value.