Abstract
The study aimed to empirically investigate the impact of board diversity variables (age, gender, nationality, education, tenure, and expertise) on the investment preferences of foreign institutional investors in an emerging market, China. For this, sample data consisted of 1374 nonfinancial Chinese firms from 2009 to 2018. The study used OLS regression as a baseline regression, a fixed effect model to control omitted variable bias, and the two-step systems GMM model to control the endogeneity problem. The study revealed that board diversity variables (gender, nationality, education, and financial expertise) are positively associated with foreign institutional ownership in Chinese nonfinancial firms, implying that foreign institutional investors own a high percentage of Chinese nonfinancial firms with diversity of gender, nationality, education, and financial expertise. Age and tenure of board diversity, on the other hand, have little correlation with foreign institutional ownership. Further, the robustness regressions also confirmed the relationship between board diversity and foreign institutional ownership. This study made a unique attempt to provide empirical evidence that firms having diverse boards attract foreign institutional ownership by reducing asymmetric information.
Highlights
The impact of the role of foreign institutional investors has increased in global capital markets due to financial globalization (Ferreira and Matos 2008) and has made the investment choices of foreign institutional investors a widely researched topic in recent academic literature
The study found that board diversity variables positively affect foreign institutional ownership in Chinese firms, while age and tenure diversity have an insignificant effect on foreign institutional ownership
The study findings revealed that foreign institutional investors perceive a corporate board as a means to improve firm performance by monitoring firm investing and financing decisions wisely
Summary
The impact of the role of foreign institutional investors has increased in global capital markets due to financial globalization (Ferreira and Matos 2008) and has made the investment choices of foreign institutional investors a widely researched topic in recent academic literature. Foreign institutional investors are important for firms because they provide the financial resources to the firms and mobilize skills and knowledge from their home countries (Ferreira et al 2010; Gillan and Starks 2003) and improve firm performance by reducing stock price volatility (Vo. 2015). Ryu 2019; Neupane et al 2016), and board composition to identify the determinants of foreign institutional investment (Abdioglu et al 2013; Yeh 2018). Most of these studies are conducted in technologically advanced countries (Kang and Stulz 1997) and lack board diversity as a determinant of foreign investment (Yeh 2018). This study fills the research gap by investigating the relationship between board diversity and foreign institutional ownership
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