Abstract
ABSTRACT Purpose: We analyzed the impact of board directors with foreign experience on the accounting and market performance of companies listed on the Brazilian Stock Exchange (B3). Originality/value: We show unpublished empirical evidence about the relationship between the foreign experience of board directors and the performance of Brazilian firms. Knowing this relationship better contributes to the formulation of internal policies for the qualification of senior management, in addition to being valuable to shareholders, especially in a context of weak legal protection, as it is in Brazil. Design/methodology/approach: We collected data from 230 companies between 2010 and 2016, submitted it to unbalanced panel data regressions using the Systemic Generalized Method of Moments (GMM-Sys). Findings: The results suggest that the higher the proportion of board members with academic and professional foreign experience, the lower their accounting and market performance. This finding can be justified by institutional isomorphism, in which having an experience abroad would be a myth, a status institutionalized by the Brazilian society. In addition, foreign owners and directors face cultural barriers and would have less knowledge of the local environment, which would increase information asymmetries, impacting negatively in firms’ performance. On the other hand, an increase in the number of foreigners on the board positively influences the market value of companies, since, by having weaker local power networks and, consequently, less possibility to obtain private benefits, the investors could value companies with this characteristic.
Highlights
For Fama and Jensen (1983), the separation between ownership and control generated conflicts and agency costs arising from the principal and agent relationship, in which managers do not always act in the interests of capital owners (Jensen & Meckling, 1976)
The results suggest that the higher the proportion of board members with academic and professional foreign experience, the lower their accounting and market performance
We identified a great difference between the media and the median for some variables and the problems with asymmetry and kurtosis. This allows the possibility to apply the winsorization at 5% and the logarithm in some variables, such as total asset (AT), number of members, age, and tenure of the executives and board of directors
Summary
For Fama and Jensen (1983), the separation between ownership and control generated conflicts and agency costs arising from the principal and agent relationship, in which managers do not always act in the interests of capital owners (Jensen & Meckling, 1976). Organizations incorporate rules and procedures in order to legitimize their actions in the face of the environment (Meyer & Rowan, 1977) From this perspective, corporate governance practices, while institutionalized, have a legitimating character (Rossoni & Machado-da-Silva, 2010) that standardizes the forms of control and coordination of the behavior of the top management of firms (Fiss, 2007). Directors with foreign experience make better tax policy decisions (Wen et al, 2020), increase levels of transparency (Liao et al, 2017), and reduce the volatility of firms’ share prices, especially in countries with weak corporate governance (Cao, Sun, & Yuan, 2019) They would be removed from their local context, which could impair the judgment of financial information, leading to greater influence from the chief executive officer (CEO) and majority shareholders (Liao et al, 2017). Investment in the foreign experience of directors would be a “myth”, a “ritual” already institutionalized in the Brazilian society
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