Foreign Directors Research Articles

“The effect of foreign directors on financial performance: an applied study on the UK”

“The effect of foreign directors on financial performance: an applied study on the UK”

Board attributes and CSR expenditure before and during COVID-19

PurposeThis study aims to investigate the impact of board attributes on the corporate social responsibility (CSR) expenditure of the listed firms before (2019) and during (2020) COVID-19 in Nigeria.Design/methodology/approachThe data were manually extracted from the annual reports of all the listed companies that published their reports for the years. A total of 266 firm-year observations were generated, comprising 140 and 126 observations for 2019 and 2020, respectively.FindingsThe results indicate that the frequency of board meetings and foreign directors on the board significantly influence CSR expenditure before and during COVID-19. Board independence had a significant positive association with CSR expenditure before COVID-19 but insignificantly positive during it. However, board size and gender diversity do not influence CSR expenditure before and during COVID-19.Research limitations/implicationsThe study used secondary data from the annual reports to compare the impact of board attributes on the CSR expenditures of listed firms in Nigeria between 2019 and 2020.Practical implicationsProviding effective CSR regulations and incentives could motivate or mandate the board of directors to incur CSR expenditure within the company’s financial capacity for society’s welfare, particularly under challenging times like COVID-19.Social implicationsEncouraging firms to incur more CSR expenditures to their ability will contribute to poverty alleviation and improve socio-economic development.Originality/valueThis study is one of the few that investigated the effects of board characteristics on CSR expenditure for the welfare of the poor and the needy. Besides, it uniquely focused on comparing the results before and during COVID-19.

Some aspects of stage performances of musicals at Kyiv National Operetta Theatre in 2005-2021

The article is devoted to the peculiarities of staging musicals in the Ukrainian musical theatre of the beginning of the 21st century. Using the example of Kyiv National Operetta Theatre, the author analyses the problems faced by the theatre while staging a musical, investigates practical ways to solve problematic issues, and considers the prospects for further presentation of musicals to the audience. The author pays attention to the motivation of the theatre and production groups during the selection of material for the stage performance: the creative ability of the team, the relevance of the subject, etc. The article examines a creative potential of the theatre, in particular a special cast of a team necessary for the realization of the musical: qualification requirements for soloists, choir, ballet and orchestra. The author draws a special attention to differences between staging a musical and an operetta, focusing on the peculiarities of working with a team who is engaged in both of these genres. The article examines the issue of copyright protection, difficulties faced by Ukrainian theatres working with foreign rights holders. One of the key aspects of the article is the analysis of the experience of cooperation with foreign directors and creation of co-productions. The author also touches the issue of a technical support of the stage as an important condition for creating a high-quality stage product in the musical genre. The conclusion of the study was resulted in generalization of outputs of the conducted analysis.

Are Reshoring Decisions Influenced by External Stakeholders and Country‐Level Environmental Regulation?

AbstractThe rationale behind reshoring activities remains unclear. Multinationals reshore their subsidiaries when regulations in the host country become too costly or difficult to manage. However, it is unclear whether the positive association between the propensity for reshoring subsidiaries and the host country's regulations applies to all types of subsidiaries (i.e. majority or minority owned) and whether it is moderated by other factors. We suggest that external stakeholders play a crucial role in strengthening the relationship between the decision to reshore and the host country's regulations. Within the context of international business, we examine the reshoring decision of a panel of subsidiaries controlled by UK multinationals located in 39 countries and focus on a specific set of environmental and corporate governance regulations. Our findings suggest that reshoring amongst minority‐owned subsidiaries is more likely to happen in countries with weak protection of shareholders and mandatory environmental disclosure. Such a relationship is also strengthened by the presence of external stakeholders, namely, foreign directors sitting on subsidiaries’ boards. We contribute to the reshoring literature by showing the role of external stakeholders and the impact of institutions and regulatory requirements on reshoring decisions.

Does diversity among directors affect corporate climate change behaviour? Evidence from Japan

ABSTRACT This paper examines how female and foreign corporate directors influence their corporation’s climate change behaviour. This study found that female directors contribute to the formulation of their company’s climate change vision, and foreign directors contribute to the formulation of a climate change mission. Japan has set a long-term goal of reducing greenhouse gas emissions to net zero by 2050, an extremely difficult goal to achieve. Our results suggest that it is important to appoint female and foreign directors to achieve net zero emissions. Our results also suggest that diversity among company directors needs to be further expanded.

Sustainability reporting nexus to corporate governance in scholarly literature

Sustainability reporting has become a practice of the majority and is decided by boards of directors as the supreme governing body in the decision-making process of companies. The paper provides a high-view picture and visualizes research to portray the historical shifts in sustainability reporting nexus to corporate governance through an analysis utilizing CiteSpace software on 935 articles published in Web of Science Core Collection from 2009 to 2021.The number of papers in the area has expanded, especially since 2013 (a branching point), while the study determines a type of bifurcation spot (the year 2017) that evinces the SR-CG field maturity. The study determined the dominant countries through affiliated to them researchers (the United Kingdom, Spain, Italy, China and Australia), the most esteemed journals (Journal of Business Ethics, Business Strategy and the Environment and Accounting, Auditing & Accountability Journal), and the major co-occurrence of hot keywords (carbon disclosure project, environmental disclosure quality, integrated reporting, financial performance, foreign director, environmental reporting, public sector, sustainability assurance statement). The paper identifies principal issues where SR-CG research lags (dearth of those research in developing economies and geographical limitation of research) and unravels uncharted so far domains (jurisdictions-related studies) in the realm. Future research in the realm is likely to focus on ESG, disclosures and governance performance, as well as on specific areas (geography, industry, etc.), and will explore in depth the role of multiple factors together. This papers indicate the growing convergence between SR and CG in literature, and given predominance of ‘SR as a function of CG’ approach a more stalwart and sound CG framework could bring about more tenable SR practices. The paper puts forward an agenda for advancing forthcoming research in the realm of SR-CG interdependence. AcknowledgmentThis paper is co-funded by European Union through the European Education and Culture Executive Agency (EACEA) within the project “EU BEST PRACTICE OF LIFE CYCLE ASSESSMENT, SOCIAL, ENVIRONMENTAL ACCOUNTING AND SUSTAINABILITY REPORTING” 101047667 — EULASTING — ERASMUS-JMO-2021-HEI-TCH-RSCH https://bit.ly/3Bbvquw

Environmental, social and governance performance (ESG) and firm investment efficiency in emerging markets: the interaction effect of board cultural diversity

PurposeThis paper aims to explore whether environmental, social and governance (ESG) performance is positively associated with firm investment efficiency (IE) in emerging economies. It also examines whether board cultural diversity can moderate the ESG–IE relationship.Design/methodology/approachThis paper uses a cross-country sample of listed firms located in seven emerging countries over the 2011–2019 period. The authors use a fixed effect panel regression to empirically test the hypotheses. The authors also use a lagged model and a Heckman’s (1979) two-stage procedure to mitigate potential endogeneity issues. In addition, a two-stage least squares regression analysis was done as an additional robustness check.FindingsThis study finds that firms with stronger ESG performance have a higher investment efficiency. Interestingly, this study finds that board cultural diversity negatively moderates the impact of ESG performance on IE for firms operating in settings prone to overinvestment. This result suggests that ESG performance plays a less important role in mitigating managers' tendencies to overinvest when corporate boards have more foreign directors. However, the authors do not find such evidence in firms prone to underinvestment. These findings hold after using an alternative measure of IE and controlling for endogeneity concerns.Originality/valueThis paper adds to the existing body of knowledge in three dimensions. First, to the best of the authors’ knowledge, this is the first cross-country study that investigates the linkage between ESG performance and corporate IE in the context of emerging countries. Second, the authors have enriched the prior literature by examining the moderating effect of board cultural diversity on the positive association between ESG performance and corporate IE. Finally, this study has important implications for policymakers and capital suppliers in emerging countries, which strive to facilitate the efficient allocation of scarce resources.

Board internationalization and corporate social responsibility

This study examines the association between board internationalization and firms’ corporate social responsibility (CSR) performance in China during 2009–2019. Using a large dataset of director nationalities and CSR scores, we find that foreign directors promote CSR performance as evidenced by higher CSR scores. We further document that this relationship is more pronounced among government-controlled firms, firms with better corporate governance, and firms operating under stricter institutional environments. These findings remain valid after sequential robustness checks. Overall, our findings imply that foreign directors motivate the board of directors and their firms to actively pursue and practice social responsibility. Our study enriches the literature on the outcomes of board internationalization and determinants of CSR and provides the internationalization of corporate governance mechanisms a reasonable basis.

The influence of Corporate Governance on Credit Rating in Pakistan

Credit rating agencies have great significance in the growth of the financial industry by giving confidence to borrowers and lenders through expressing their opinion on the ability of the institution to meet its financial obligation through credit ratings. Therefore, if the governance structure is weak, credit rating agencies are likely to expect poor financial position and vulnerability of the stakeholders' interests. The purpose of this study is to determine whether the corporate governance characteristics of Islamic banks influence Islamic banks' credit ratings. Data is calculated from the annual reports of 22 banks in Pakistan for 14 years from 2007 to 2014. The results show that the board size, board members' independence, CEO tenure, blockholders, foreign investors, Shariah board size, education levels of Shariah supervisors, and Shariah board expertise negatively affect credit rating when bank-specific financial variables are used as the control variables. On the other hand, credit rating is positively correlated with board independence, foreign directors, women directors, board meetings, listing shares, size of audit committee members, audit committee meetings, changes in the structure of the shariah supervisory board, and foreign shariah experts. As a result, Islamic banks in Pakistan show strong corporate governance, leading to better credit ratings.

Audit committee characteristics and corporate philanthropic donations before and during COVID-19

PurposeThis study aims to examine the effects of audit committee attributes on corporate philanthropic donations before and during the COVID-19 pandemic.Design/methodology/approachThe study targets Nigeria’s listed firms between 2019 and 2020. We hand-collected the data from the available published annual reports of 141 and 128 firms for 2019 and 2020, respectively. Therefore, the authors used a total of 269 firm-year observations for the study. The authors used ordinary least square regression to analyze the data and Tobit regression to establish the robustness of the results.FindingsThe results indicate that the frequency of audit committee meetings has a significant positive relationship with corporate philanthropic donations before and during COVID-19. In the case of audit committee independence, it has only a significant positive relationship with corporate philanthropic donations during the pandemic. However, the findings reveal that audit committee size and foreign directors on the audit committee do not influence corporate philanthropic donations before and during COVID-19.Research limitations/implicationsThe study considers audit committee characteristics out of the corporate governance mechanisms that can influence the philanthropic donations of the listed firms in Nigeria over two years from 2019 and 2020.Practical implicationsThe findings have practical implications for encouraging the audit committee to support philanthropic donations for the welfare of the poor and the needy, particularly in difficult times like the COVID-19 period. The results could also help regulators and policymakers to provide regulations and policies that can encourage firms to participate actively in philanthropic activities to their best ability.Social implicationsMotivating firms to provide philanthropic donations for the welfare of underprivileged persons could strongly support the government’s effort to minimize the socioeconomic problems caused by COVID-19.Originality/valueThe study contributes to the scant literature that establishes the impact of audit committee attributes on firm philanthropic donations toward helping the poor and the needy in difficult periods.

The impact of board diversity on financial reporting quality in the GCC listed firms: the role of family and royal directors

The present study examines the impact of board diversity on financial reporting quality with special consideration of the extent to which family and royal directors influence financial reporting quality (FRQ). The study utilises a sample of 181 listed GCC firms over the period from 2010 to 2016. Board personal attributes, including board expertise, age, gender, and nationality are investigated along with some other board issues such as; board size, meetings, and independence. Panel data analysis with fixed and random effect models are conducted to estimate the results. The results reveal that companies with large board size and greater age have less FRQ. Further, the results report that institutional founders, higher board independence, and expertise associate with greater levels of FRQ. The results also find that board meetings and family founders negatively influence FRQ. However, female directors, foreign directors, and royal board members setting in the board did not contribute to the levels of FRQ in the sampled companies. Finally, the results indicate that companies with a CEO royal member have higher levels of FRQ however, companies with chair board royals have less levels of FRQ. This research has valuable implications for investors, board of directors, analysts, academicians, and policymakers.

Nationality Diversity in Corporate Boards and Tax Avoidance: Evidence from Oman

We examine the impact of nationality diversity in corporate boards on tax avoidance by assessing whether foreign directors play monitoring or advisory roles. We use a sample of 1049 firm-year observations from companies listed on the Muscat Stock Exchange between 2009 and 2019. We find that board nationality and audit committee nationality are associated with lower effective tax rates, which equated to more tax avoidance (an advisory role). Our findings offer an important implication for policymakers who are interested in determinants of and mechanisms to prevent tax avoidance. The implication is that caution should be exercised when appointing foreign directors to the board of directors in Oman.

The corporate governance-diversification link: exploring the heterogeneity of family firms

PurposeBuilding on behavioral agency theory, the authors explore the role played by corporate governance characteristics as drivers of the diversification strategies of family firms. Specifically, this study aims to investigate the effects of board size and board gender diversity on the likelihood that family firms will execute a diversifying acquisition vis-à-vis a related acquisition. Furthermore, the authors investigate the contingency effects played by foreign directorship and the firm’s listing status.Design/methodology/approachThe hypotheses are tested on an original sample of 213 cross-border acquisitions executed by Italian family firms between 2008 and 2021.FindingsThe findings suggest that both large board sizes and greater gender diversity positively affect the diversification of family firms. While the presence of foreign directors magnifies the positive effect of board size, gender diversity discourages diversification in the case of listed firms.Originality/valueThe originality of this study is twofold. First, while prior literature has mostly focused on the family vs nonfamily dichotomy, this paper contributes to an emergent line of research investigating the heterogeneity among family firms’ corporate strategy decisions. Second, by exploring the corporate governance-diversification link in the context of family business, the authors answer to recent calls that diversification by family firms deserves further investigation in light of its highly controversial nature in terms of socioemotional wealth implications and potential mismatch among multiple objectives.

The Effect of Diversity of Board of Directors and Environmental Performance on Corporate Social Responsibility (Empirical Study of Companies Registered at the Ministry of Environment in 2020)

The purpose of this study was to determine whether there is a relationship between the diversity of the board of directors and environmental performance in corporate social responsibility. For this study, the population consisted of manufacturing companies traded on the Indonesia Stock Exchange in 2020. Purposive sampling was the method used to collect data so that 71 of the total sample of companies met the requirements. With the help of the SPSS application, descriptive statistical analysis methods were used in the data analysis process. Based on the findings of this investigation, the Corporate Social Responsibility factors are known as the foreign Director, tenure, gender, and environmental performance do not interact with each other at all.

The impact of foreign directors and firm performance on strategic change

PurposeThis study aims to investigate the joint effect of foreign directors (FDs) and firm performance on the corporate strategic change.Design/methodology/approachA theoretical framework linking foreign directors, firm performance and strategic change is proposed and tested. This study uses a sample of longitudinal data from 958 US listed firms over the period 2010–2018. The basic model of study first tests whether there is a direct relationship between FDs and level of strategic change. It then incorporates firm performance as a moderating variable, testing its effect on the relationship between foreign director and strategic change.FindingsConsistent with the study’s expectations, the empirical findings indicate that FDs rich in appropriate experience are associated with superior strategic change, measured both in terms of variation in firm strategy over time and deviation from industry norms. The findings confirm that FDs are a salient driver of strategic change. The strength of the effect, however, depends on the firm performance.Research limitations/implicationsThis paper has implications for effective global leadership development based on international appointments. First, directors can benefit from being assigned to work in foreign countries so that they are exposed to a wide range of experiences and can learn to overcome culture shock. Second, posting directors to foreign countries can improve their international knowledge and enhance various competencies related to creativity, leadership and problem-solving. By demonstrating that the board’s characteristics can play a role in corporate strategy development, the current study thus has implications for both study and practice with regard to board composition. The number of seats on any given board is finite, and each individual director is thus expected to not only monitor top management but also to apply their knowledge and relevant experience in service to the company’s ambitions. Except in cases where high firm performance leads to strategic persistence, the results suggest that greater levels of FDs correlate positively with strategic change.Practical implicationsThe practical implications of this paper pertain to director recruitment and selection. First, the findings echo support for the inclusion of members with greater levels of international experience on boards and top management teams. It seems that, despite the importance of this characteristic, directors at US companies often lack substantial experience abroad (Carpenter and Westphal, 2001). A possible reason for this could be that internationally experienced employees otherwise lack the social capital necessary for promotion to directorships because of time spent stationed away from the firm’s headquarters. It is thus essential for companies to create networking opportunities for directors assigned to foreign offices.Originality/valueAlthough previous research has provided some insight into how chief executive officer international experience can manifest in strategic change, this understanding remains far from complete for the members of board of directors. Furthermore, the topic of firm performance as a potential moderating influence remains underexplored. The aim of this study, therefore, is to assess the impact of FDs among directors on corporate strategic change while taking into account the possible confounding role of firm performance in this relationship.

On the Dual Role of Foreign Directors: New Insights from the Russian Boards

ABSTRACTUsing a unique sample of hand-collected profiles of foreign directors over the period of 2006–2016, I examine whether foreign directors' board representation improves its dual role of monitoring and advising executives. The setting for this study is Russian public companies' boards of directors. I find that foreign directors' board representation is positively associated with the probability of Russian companies' cross-listing on London Stock Exchange's Main Market, alone or in combination with other markets. Non-London stock exchanges that are popular among Russian companies are characterized by less rigorous listing and reporting obligations as compared to London Stock Exchange. Accordingly, foreign directors enhance the boards' advisory role but only in cases in which their expertise is critical. Notably, foreign directors' serving on the audit committee is related to lower discretionary accruals and is associated with fewer modified audit opinion instances, thereby constraining managerial opportunistic behavior and enhancing the board's monitoring roleData Availability: Data are available from the public sources cited in the text.JEL Classifications: G30; G34; J15.

Does Board Cultural Diversity Contributed by Foreign Directors Improve Firm Performance? Evidence from Australia

Australian firms hire an increasing number of foreign directors who bring various cultural perspectives to their boards’ conversations. We evaluate the effect of board cultural diversity contributed by foreign directors on firm performance for a sample of Australian companies, constituents of ASX200. We employ Hofstede’s six cultural dimensions to estimate board cultural diversity. We document a positive relationship between board cultural diversity and firm performance as measured by Tobin’s q and ROA after controlling for various board and firm characteristics. This suggests that more culturally diverse boards may bring benefits to their firms that outweigh the potential costs of conflict and miscommunication caused by cultural differences. Our finding holds after controlling for firm and time fixed effects, implementing an instrumental variable approach, controlling for a firm’s foreign operations and presence, and using alternative cultural diversity measures. We find that not all aspects of cultural differences matter, and it is the diversity in masculinity, uncertainty avoidance, and long-term orientation dimensions that positively determine firm performance. This finding on the positive effect of board cultural diversity for Australian firms contrasts with the evidence from other countries, highlighting that the value of cultural diversity can differ across countries and over time.

Audit committee members’ proximity to corporate headquarters and audit fees

PurposeThis study aims to investigate how audit committee members’ geographical location relative to corporate headquarters affects audit fees. The motivation for the paper rests on the observation that regulatory and market trends have significantly affected the composition of boards of directors and audit committees. To ensure that audit committees play their monitoring role, regulations now require directors’ independence and some level of financial expertise. The need to find directors who meet these requirements, as well as the advent of globalization and technological improvements lead firms to expand their reach when looking for directors.Design/methodology/approachThe authors use a sample of 1,517 firm-year observations of Canadian firms from 2008 to 2017. The study relies on multivariate analyses.FindingsThe results show that, among nonlocal audit committee members, the presence of foreign directors is associated with higher audit fees. In contrast, other nonlocal audit committee members do not have a differential impact on audit fees. This effect is more prevalent in large firms. Moreover, having a foreign chair of the audit committee as well as foreign audit committee members who are not accounting experts appear to accentuate the increase in audit fees. A possible explanation for the finding is that, from the supply side, auditors assign a higher risk to firms with a higher percentage of foreign audit committee members. Alternatively, from the demand side, firms with foreign audit committee members may ask for more audit effort. Further analysis indicates that having a higher percentage of foreign audit committee members is associated with a higher likelihood of restatements, an indication of low audit quality.Originality/valueTo the best of the authors’ knowledge, this study is the first to document that auditors price the location of audit committee members and consider it when planning for their audit.

Board Characteristics and the Insolvency Risk of Non-Financial Firms

How do board characteristics influence the risk of bankruptcy? We study this question by estimating classic Z-Score models using panel data comprising 2519 listed non-financial firms from 29 European countries over the 2012–2020 period. We found that board independence is associated with lower risk of bankruptcy. In contrast, employee representatives have an adverse effect on board monitoring capacity and are predicted to increase bankruptcy risk. The presence of female directors and foreign directors on board—two indicators of board diversity—reduce bankruptcy risk. While board independence and diversity decrease bankruptcy risk in financially non-distressed firms, they have the opposite effect in financially distressed firms. These findings are statistically and economically significant and hold, at least in part, under alternative specifications. Our findings demonstrate the need for governance regulators, credit rating agencies, financial institutions, firms and investors to lend more weight to board composition, especially under the conditions of impending financial distress.

The Effect of Board Diversity and Corporate Performance in Malaysia: Pre- and During COVID-19 Pandemic

The objective of this study, which is based on the upper echelon theory, managerial networking theory and agency theory, is to investigate the influence of board diversity on the performance of Malaysian Pharmaceutical Listed Companies. The information was gathered from pharmaceutical businesses listed on the Bursa Malaysia Berhad from 2015 to 2020. Because the data comprises observations on distinct company parts throughout time, the fixed effects model is used to address the endogeneity problem. We discovered that gender diversity, board size, and foreign directors as evaluated by Bhattacharya's index have a favorable and significant effect on Pharmaceutical-listed firm performance for both accounting and market measures after controlling for many firms and board characteristics. In Pharmaceutical-listed firms, independence, diversity, meeting, and expertise do not appear to be important determinants of corporate performance. The findings confirmed the efficient monitoring hypothesis and management networking theory, which propose that director variety minimizes managerial entrenchment on the one hand, while networking boosts firm resources on the other.