Foreign Board Research Articles

Globalizing the Board and Financial Performance : Evidence from Nigerian Banks

The board of directors is crucial and very important in a business control structure. The value of boards in decision making and increasing the wealth of shareholders depends on how well directors perform their functions. However, the role of foreign independent directors (FIDs) in a firm can never be over emphasized. It is expected that they can improve the advisory role of boards because of direct information about international markets. This study, therefore, investigated if there is a significant difference between the performance of firms with and those without FIDs. The paper observed that a non- significant relationship existed between the tested parameters. This non-substantial difference is likely to be due to the fact that international directors have a tendency to adjust to the socio-organizational values of the location in which they function from. The study, therefore, recommends that FIDs should be encouraged because of their different backgrounds. This will enable them to add to the firm's values and various skills which some domestic board members do not possess. In order to encourage both minority and majority foreign investors, foreign board members should be allowed on boards for assurance that the corporation is being managed by professionals in their best interests.

The Impact of Board Internationalization on Earnings Management

Prior literature shows that choices regarding board composition are associated with earnings management. We add to this literature by examining the effects of the presence of a foreign board member on earnings management. Using a sample of 3,249 firm-year observations representing 586 non-financial listed Nordic firms during 2001-2008, we find that the presence of a non-Nordic, foreign director is associated with significantly higher levels of earnings management. Moreover, we provide preliminary evidence that differences in accounting knowledge drive this effect. Our results suggest that it may not necessarily be beneficial to appoint a foreign director to the board.

The Impact of Client Characteristics on the Selection of the Audit Firm: An Empirical Study on the Egyptian Listed Companies

Auditor selection can be regarded as a matter of audit quality. This Research aims to identify the factors which affect the choice of the Audit Firm in case of an emerging capital market as Egypt. It provides empirical evidence on the association between the Audit Firm selection and their client firms’ characteristics based on a sample of 101 firms listed in the Egyptian Stock of Exchange for the year ended 2013. Our findings indicate that certain firm’s characteristics affect the choice of the Audit Firm. Actually, Firms’ Size, Profitability, Foreign shareholdings, and the existence of a Foreign Board Member have significant positive influences on the selection of the Audit Firm. On contrast, firms’ leverage, age, and ownership concentration are found to be non- significant to firm’s choice of the external auditor in case of Egypt.

The effect of foreign management and board membership on the performance of foreign acquired Turkish banks

Purpose– The purpose of this paper is to explore the effects of appointing foreign directors on the foreign acquired Turkish banks. Based on the developments in the Turkish banking system and the distinctive features of the Turkish market, the authors examine the appointment of foreign directors in three different levels: as a CEO, chairman and board member. The authors analyse how the appointments of foreign directors in each of these three levels affects the profitability and strategies of foreign acquired banks.Design/methodology/approach– The authors use the difference-in-difference (DID) model where the authors compare two groups: foreign acquired banks vs domestic banks for a five-year period. By applying the DID model, the authors aim to remove the time invariant individual characteristics of the banks that could be due to the permanent differences between the two groups, as well as biases from comparisons over time that could be due to trends.Findings– The authors find that the presence of the foreign chairman has a positive effect on the profitability of the foreign acquired bank and on the improvement of the income generated from interest activities, indicating that foreign chairman improves the monitoring of board of directors and brings new skills and experiences. Furthermore, foreign acquired banks are associated with an increase in the income generated from non-interest activities in the fifth year following their acquisitions, showing the introduction of new strategies. The change of the foreign acquired bank’s strategies in the fifth year after acquisition also suggests that it takes time to implement new strategies in a new environment.Originality/value– Though the effects of foreign board membership on bank’s performance have been previously discussed in literature, this study differentiates in that it distinguishes among different positions, e.g. chairman or CEO when examining the effect of a foreign director on a foreign acquired bank’s performance. In addition, the use of foreign acquired Turkish banks in the sample in this context adds to the general academic literature.

Investigating the relationship between corporate governance and banks’ financial performance: Egypt case

In the last few decades, policy makers around the world have focused on corporate governance reform since the Asian financial crisis and scandals in the United States such as the Enron debacle. In addition, there is no doubt that banks have significant position in the welfare of any economy. Corporate governance involves in how banks’ businesses and affairs are governed by its board of directors that raises a fundamental question of how this could affect banks’ financial performance. The focus of this research is to investigate the relationships between some of the corporate governance variables that are related to the board of directors on the financial performance of these banks working in the Egyptian market. Thirteen banks that are listed in the Egyptian Stock Exchange were selected with data collected for the period from 2011 till 2013 which is the post Egyptian revolution era. Research analyses adopted in this study are descriptive, correlation and regression analyses to test the research hypotheses. Findings of this research provide evidence that some of these variables such as board independence, foreign board members ratio, women board members ratio and board educational ratio have significant effect on the financial performance of these banks; however, board size and CEO qualities do not have any significant effect on banks’ performance. The research reaches some implications that are important to different stakeholders on practical and academic levels.

The effect of governance mechanisms on the quality of risk disclosure: using bootstrap techniques

The purpose of this study is to examine the effect of six corporate governance mechanisms (institutional investors, foreign investors, major investors, debt ratio, board size and board composition) on the quality of corporate risk disclosure. The study uses a sample of listed firms in the Bahraini capital market and applies bootstrap techniques as a new method of statistical analysis. The findings show that institutional investors and major investors have a significant and positive effect on the quality of corporate risk disclosure. However, board size is found to have a significant and negative effect on corporate risk disclosure. Foreign investors, board composition and debt ratio are insignificant in relation to risk disclosure. The study suggests that the bootstrap techniques are a useful tool for the purpose of approximating the sampling distribution of a statistical analysis for which the sample size is small and offers a considerable potential for modelling in complex problems.

The Role of Language in Corporate Governance: The Case of Board Internationalization

Multinational corporations internationalize their corporate boardrooms in order to capitalize on their commercial and financial internationalization. Board internationalization provides access to specialized knowledge and skills, broadens social networks and ensures greater transparency of strategic decision-making. The entry of a foreign board member is often coupled with a change in the working language of the board. The purpose of the present study is to explore and explain how increased language diversity influences decision-making and work processes of corporate boards. We draw on previous research on board internationalization, diversity and language in multinational corporations. Based on a multiple case study of nine multinational corporations from four Nordic countries, we find evidence of impoverished and silenced discussions in board meetings in those case companies that were unprepared to switch to English as the new working language of the board. Some board members found it difficult to contribute to board meetings, articulate disagreement and felt socially excluded from the board. Such effects on decision-making and work processes were not found in the well-prepared companies. The study adds to the understanding of different modes to internationalize the board as a response to different forms of internationalization of the firm.

Myth or Reality? Boardroom Diversity in German Blue Chip Companies

As the question of boardroom diversity gains increasing attention both in the media and the academic world, this paper offers a comprehensive analysis of the evolution of boardroom composition of German Dax 30 corporations over a period of 10 years (2001-2010). In contrast to public opinion, results show that supervisory boards of German blue chip companies are light-years away from being considered as diversified. Both the proportions of female and foreign board members remain on a very low level. Furthermore, some national particularities such as widespread multiple board appointments, supervisory boards which are chaired by erstwhile firm managers or similar socio-educational backgrounds of current chairmen seem to be rather the rule than the exception. Whereas an increasing activity of board subcommittees can be observed, supervisory boards themselves hardly change their activity over time with respect to team size or meeting frequencies.

Foreign board membership and firm value in Korea

PurposeThis paper seeks to explore such questions as: “What are the impacts of foreign investors and what are the channels through which foreign investors contribute to or detracts from firm value in Korea?” It aims to discuss how foreign investors and foreign outside directors interact to enhance firm value.Design/methodology/approachUsing longitudinal data from the KOSPI200 index in Korea during 2004‐2007, the study examined the direct and interaction effect of foreign blockholders and foreign board members. To address the representativeness of foreign investors, the authors verified the mandates of foreign board members though telephone interviews.FindingsForeign block shareholders and foreign outside directors respectively provide expertise and independent monitoring over management. Foreign blockholders' management control via board membership is likely to mitigate leverage of value enhancement when foreign outside directors represent private interests of foreign blockholders. The moderating effect is also supported since foreign ownership concentration has an inverted U‐shaped relationship with value enhancement. The paper confirms that board independence reinforces the positive impact of foreign outside directors on firm value.Research limitations/implicationsThis study offers a key to understanding corporate governance in that mutual monitoring and a balance among various types of stakeholders are crucial to value enhancement.Originality/valueThe paper provides clues to the extant diverse findings concerning the impact of foreign investors on firm value. It applies an integrated perspective to the empirical analyses of the impact of foreign investors by giving consideration to the agency – foreign outside directors – to implement management control on behalf of foreign blockholders.

Locals, foreigners, and multi-market trading of equities: Intraday evidence from Thailand

We study stock market orders and trades in a developing country, Thailand, where foreign ownership limits partially segment local and foreign investors into two distinct markets. Some foreigners forgo voting rights and distributions to trade on the “local board”, while some locals forgo such benefits and pay a price premium to trade on the “foreign board”. Regardless of nationality, these cross-market traders typically submit orders when liquidity is high, fill orders at relatively beneficial prices, exploit patterns in stock prices across markets, display profitable holding-period returns, and enhance price discovery. This suggests that skilled, informed trading that affects market quality does not depend on trader nationality.

Shareholders' Rights and the Effect of the Origin of Venture Capital Firms on the Underpricing of US IPOs

Manuscript Type: Empirical Research Question/Issue: This paper examines whether firm performance at initial public offerings (IPO) is differentially affected by the origin of Venture Capital (VC) firms. Empirical investigations consider both the anti-director index and the anti-self dealing index of the country of origin of a specific VC firm as indicators for its level of legal protection of shareholders' rights. Research Findings/Insights: We find that underpricing of US IPOs is negatively related to the rating of the legal protection rights of VC firms within the VC syndicate of an IPO firm, and the effect is more significant in the subsample of IPOs involving foreign VC firms. There is also evidence of a complementary role played by the legal protection rights of foreign VCs and board independence of IPO firms in reducing underpricing. Further robustness tests confirm empirical findings controlling for the selection bias of IPO firms by foreign VCs, and using the effect of the protection rights of the country of origin of the lead, largest, board member, or oldest, i.e., most experienced, VC firm. There is also evidence of a positive but marginally significant effect of the legal protection rights of VC firms on the long-term performance of their portfolio companies. Theoretical/Academic Implications: Our paper suggests that the institutional framework and national legal differences should matter in considering the effect of VC firms on IPO performance. We find strong support for the institutional perspective whereby institutional predictions were largely supported. Our results also expand on prior research on VC syndication and show that in addition to VC monitoring, the shareholders' protection rights of the country of origin of foreign VC syndicate members would signal the quality of portfolio companies at IPO. Moreover, the complementary role between the legal protection rights of the country of origin of foreign VCs and board independence indicates that firm performance is the outcome of complex mechanisms involving both firm and country-level settings. Practitioner/Policy Implications: Evidence on the association between IPO performance and the origin of VC firms suggests that policy-makers and practitioners should view legal protection of shareholders' rights as a global issue. Since VC investments are valuable for the development of small and medium-size enterprises, our results should contribute to our understanding of cross-border partnering and the quality of partners within the VC industry.

The influence of foreign equity and board membership on corporate strategy and internal cost management in Portuguese banks

This study examines the influence of foreign equity and board membership on corporate strategy and the management of internal costs of banks headquartered in Portugal using proprietary data maintained by the Central Bank. The findings reveal that foreign equity reduces both total and operating costs, and foreign board membership reduces domestic banks’ dependence on revenues from traditional areas of business and enhances the potential for generating revenues from non-traditional areas of business. These results are controlled for a variety of standard accounting ratios used in the literature. We argue that foreign equity and board membership forces banks to redirect corporate strategy and to reduce internal costs.

The Effects of Internationalization on CEO Compensation

This study examines the relation between the internationalization of firms and CEO compensation. Starting from a sample of Norwegian and Swedish listed firms, we analyze the effects of internationalization as manifest in the capital market (international cross-listing), the market for corporate control (foreign board membership), and the product and service market (export and foreign sales). We conclude that all three markets contribute positively to the compensation level of CEOs. We argue that part of the higher CEO compensation in internationally oriented firms - as compared to less internationalized firms within the same country - reflects a risk premium for reduction in job security.Published with the revised title The Anglo-American Financial Influence on CEO Compensation in Non-Anglo-American Firms.

The relaxation of foreign ownership limits and market integration: the case of Thailand

The Thai stock market maintains two separate listings for common stocks which have reached foreign ownership limits. Prices on the Foreign Board are typically traded at a premium relative to prices on the Main Board. The price premium is both a measure and evidence of market segmentation. Thai commercial banks were faced with financial and operational difficulties in the wake of the 1997 financial crisis. To rescue the banking industry, the Thai government relaxed the foreign ownership limit for a ten‐year period. We show in this paper that the Thai banking industry was segmented before the crisis; but when the foreign ownership limits were removed, the banking industry was integrated.

The impact of foreign board membership on firm value

Abstract This study examines the effect of foreign (Anglo-American) board membership on corporate performance measured in terms of firm value (Tobin’s Q). Using a sample of firms with headquarters in Norway or Sweden the study indicates a significantly higher value for firms that have outsider Anglo-American board member(s), after a variety of firm-specific and corporate governance related factors have been controlled for. We argue that this superior performance reflects the fact that these companies have successfully broken away from a partly segmented domestic capital market by “importing” an Anglo-American corporate governance system. Such an “import” signals a willingness on the part of the firm to expose itself to improved corporate governance and enhances its reputation in the financial market.

Company Performance, Corporate Governance, and CEO Compensation in Norway and Sweden

This paper examines the relationshipamong company performance, corporategovernance arrangements, and CEO compensationwithin the Scandinavian countries of Norway andSweden. Our sample consists of 224 tradedcompanies, 120 of which are from Norway and 104from Sweden. The empirical evidence fromboth Norway and Sweden reveals significantpositive relationships among board size andCEO compensation, foreign board membership andCEO compensation, and market capitalization andCEO compensation. A significant negativerelationship is found between CEO ownership andCEO compensation. In addition, no significantrelationship is found between companyperformance and CEO compensation or CEO tenureand CEO compensation, except in the case ofNorwegian firms when a change in market-to-bookperformance measure is used. Despite itslimited geographical scope, the study adds toour general understanding of internationalcorporate governance issues.

Screening Foreign Direct Investment in LDCs: Empirical findings of the Colombian case (1967-1975)

This article presents an empirical study of foreign investment board and of its real decision-making process. The analysis, based on more than 200 interviews of government officials and company executives and on a study of 25 foreign investment proposals reveals the existence of a large gap between screening regulations and administrative facilities; a series of propositions are offered to explain this gap. The article concludes by giving an assessment of the Colombian foreign investment screening process and by suggesting implications for the MNC negotiation strategy.

Indian Slaveholders and Presbyterian Missionaries, 1837–1861

Founded in 1837 to provide a denohinational foreign mission board for the Old School Presbyterians, the Presbyterian Board of Foreign Missions (PBFM) had from the outset a very different outlook toward mission work among slave-holding Indians than did its closest rival, the American Board of Commissioners for Foreign Missions (ABCFM), which served the New School Presbyterians and New England Congregationalists. The difference increased until 1859 when the latter organization, unable to reconcile its antislavery conviction with the determined proslavery position of the southern Indians, withdrew from that field. The PBFM, headquartered in New York City, thereupon took under its patronage most of those ABCFM missionaries who had been abandoned by their Boston-based board for refusing to expound and practice an antislavery position among the Choctaws, Cherokees, Chickasaws, Seminoles and Creeks.

The Relationship between Clinical Judgments of Missionary Fitness and Subsequent Ratings of Actual Field Adjustment

The author examined 193 missionary candidates who applied to a foreign missionary board by scoring them on two major interest inventories, four adjustment personality tests, and a sentence completion test. On the basis of test scores each candidate was placed into one of four categories: (1) those recommended without reservation; (2) those recommended with minor reservations; (3) those recommended with semi-serious reservations; and (4) those recommended with serious reservations. The distribution of ratings was heavily skewed (i.e., only 11.9% fell into categories 1 and 4 together). Some years later these candidates, then in missionary service, were rated for overall adjustment to the field on a five-step scale (A, B, C, D, and F) by a field secretary of the board who was familiar with their respective records of service. These field adjustment ratings were also heavily skewed (less than ten per cent received ratings of D or F). Mean adjustment scores of the recommendees showed some differentiation at an acceptable confidence level. For this board's candidates and this examiner the test-based recommendations had some predictive validity, although the heavily skewed distributions of predictor and criterion scores almost certainly attenuated the predictive validity that was obtained.