Abstract
Foreign directors can affect firm value through their advising and monitoring functions. However, the demand for these directors, as well as their effect on firm performance is likely to be influenced by firm- and country-level characteristics. In a large sample of non-US firms, we find that foreign directors are more likely to be associated with firms that have more foreign operations and an international shareholder base, and firms that are located in countries with a limited supply of potentially qualified domestic directors – countries with a smaller, less well-educated populace and lower levels of capital market development. We also find that the association between foreign directors and firm performance is more positive in countries with lower quality legal institutions, and when the director comes from a country with higher quality legal institutions than the firm’s host country. Our study highlights the importance of considering national demographic factors and levels of capital market development when modeling the supply and demand for foreign directors, and also underscores the importance of institutional quality in the foreign director’s home and host country when assessing the effect of that director on firm performance.
Résumé
Les directeurs étrangers peuvent affecter la valeur d’une entreprise par leurs fonctions de conseil et de pilotage. Toutefois, la demande pour ces directeurs, ainsi que leur effet sur la performance de l’entreprise, est susceptible d’être influencée par les caractéristiques de l’entreprise et du pays. Sur la base d’un large échantillon d’entreprises non américaines, nous constatons que les directeurs étrangers sont plus susceptibles d’être associés à des entreprises qui ont plus d’opérations à l’étranger et un actionnariat international, et à des entreprises qui se trouvent dans des pays ayant une offre limitée de directeurs domestiques potentiellement qualifiés – des pays avec une population plus petite, moins instruite et des niveaux inférieurs de développement des marchés de capitaux. Nous constatons aussi que l’association entre les directeurs étrangers et la performance de l’entreprise est plus positive dans les pays avec des institutions juridiques de moins bonne qualité, et quand le directeur vient d’un pays avec des institutions juridiques de meilleure qualité que celles du pays hôte de l’entreprise. Notre étude met en évidence l’importance de considérer les facteurs démographiques nationaux et les niveaux de développement des marchés de capitaux pour la formation de l’offre et de la demande concernant les directeurs étrangers, et souligne également l’importance de la qualité des institutions dans le pays d’origine et le pays d’accueil du directeur étranger pour l’évaluation des effets de ce directeur sur la performance de l’entreprise.
Resumen
Los directores extranjeros puede afectar el valor de la empresa mediante sus funciones de asesoría y monitoreo. Sin embargo, la demanda por estos directores, y el efecto en el desempeño de la empresa es probable que sea influenciado por características a nivel empresa y país. En una muestra amplia de empresas no estadounidenses, encontramos es más probable que los directores extranjeros sean asociados con empresas que tienen más operaciones internacionales y una base de accionistas internacionales, y empresas que están ubicadas en países con una reducida oferta de directores domésticos potencialmente calificados – países con una población más pequeña, una población menos bien educada y bajos niveles de desarrollo de mercados de capital. Encontramos también que la relación entre directores extranjeros y el rendimiento de una empresa es más positiva en países con instituciones legales de baja calidad, y cuando el director viene de un país con instituciones legales de más alta calidad que las del país anfitrión. Nuestro estudio resalta la importancia de considerar los factores de demografía nacional y los niveles de desarrollo de los mercados de capital cuando se modela la oferta y demanda de directores extranjeros, y también destaca la importancia de la calidad institucional en el país de origen y país anfitrión del director extranjero cuando se evalúan los efectos de ese director en el rendimiento de la empresa.
Resumo
Conselheiros estrangeiros podem afetar o valor da empresa por meio de suas funções de aconselhamento e monitoramento. No entanto, a demanda por esses conselheiros, bem como seu efeito sobre o desempenho das empresas, provavelmente é influenciado pelas características das firmas e dos países. Em uma grande amostra de empresas não americanas, verificamos que os diretores estrangeiros têm maior chance de estar associados a empresas que têm mais operações no exterior bem como uma maior base de acionistas internacionais e empresas que estão localizadas em países com uma oferta limitada de diretores domésticos potencialmente qualificados - países com população menor e menos instruída, além de níveis mais baixos de desenvolvimento do mercado de capitais. Constatamos também que a associação entre diretores estrangeiros e o desempenho das firmas é mais positiva em países com instituições jurídicas de menor qualidade e quando o conselheiros vem de um país com instituições jurídicas de qualidade superior ao país sede da empresa. Nosso estudo destaca a importância de considerar os fatores demográficos nacionais e os níveis de desenvolvimento do mercado de capitais ao modelar a oferta e a demanda de diretores estrangeiros, e ressalta a importância da qualidade institucional no país de origem e destino do conselheiro estrangeiro, ao avaliar o efeito desse conselheiro sobre o desempenho da empresa.
概要
外国董事可以通过他们提供的咨询和监督功能影响公司的价值 。然而, 对于这些董事的需求, 以及他们对公司业绩的影响很可能被公司和国家层面的特征所影响。在非美国公司的大样本中, 我们发现, 外国董事更容易与有更多国外运营并有一个国际股东基地的公司相关, 这些公司分布在对潜在合格的国内董事供应有限的国家, 即一个人口较小, 民众受良好教育较少, 和资本市场发展水平较低的国家。我们还发现, 且当该董事来自比该公司的东道国具有更高质量法律制度国家的时候, 外籍董事和公司业绩之间的相关性在低质量法律制度国家是正向的。我们的研究突出在建立外国董事供给和需求模型时考虑国家人口因素和资本市场发展水平的重要性, 并同时强调在评估董事对公司业绩的影响时国外董事母国和东道国的制度质量的重要性。
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Acknowledgements
We would like to thank Igor Filatotchev (the editor), Stephen Ferris, Jana Fidrmuc, Shane Johnson, Jeff Netter, Emilia Peni, Markus Schmid, Paolo Volpin, seminar participants at Texas A&M University, University of Kansas, University of Missouri, University of New Hampshire, the 2011 meeting of the Financial Management Association, the 2011 meetings of the Southern Finance Association, the 2012 meetings of the Eastern Finance Association, the 2012 Financial Management Association European Conference, the 2012 meetings of the European Finance Association, the 2016 JIBS conference on “The Role of Financial and Legal Institutions in International Corporate Governance”, and three anonymous referees, for helpful comments on this and earlier drafts. We also thank Suzanna Emelio for copy-editing assistance. An earlier draft of this article was circulated under the title “A multinational study of foreign directors on non US corporate boards.” M. Babajide Wintoki also acknowledges the research support of the Institute of International Business at the University of Kansas. Any errors of analysis and interpretation are our own.
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Accepted by Igor Filatotchev, Guest Editor, on 14 September 2016.
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Miletkov, M., Poulsen, A. & Wintoki, M.B. Foreign independent directors and the quality of legal institutions. J Int Bus Stud 48, 267–292 (2017). https://doi.org/10.1057/s41267-016-0033-0
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DOI: https://doi.org/10.1057/s41267-016-0033-0