Do at home as Romans do? CEO overseas experience and financial misconduct risk of emerging market firms

Abstract

Recent CEO scandals suggest that CEOs’ overseas experiences might relate to financial misconduct risks, but there is little evidence as to whether and how CEOs’ overseas experiences affect it. Given the increasing trend on hiring CEOs with overseas experiences in emerging markets, we fill in the gap in the literature by examining the financial misconduct risks of these particular CEOs based on Chinese firms. In sum, we find that firms hiring CEOs with overseas experiences have relatively low financial misconduct risks. Further, we find that firms hiring CEOs who worked or received education in host countries that show large differences from the home country, in terms of the economic or cultural environment, have lower financial misconduct risks. Cross-sectional tests show that the effects are more pronounced in firms hiring younger CEOs. These results indicate that CEOs’ overseas experiences will mitigate a firms’ financial misconduct risks by enhancing corporate governance efficiency.