The role of corporate board structure in attracting foreign investors

Mihail K. Miletkov, Annette B. Poulsen and M. Babajide Wintoki

Journal of Corporate Finance, 2014, vol. 29, issue C, 143-157

Abstract: A long-recognized phenomenon in capital markets is the underinvestment in foreign equity securities, known as equity home bias. Our study examines the effect of board independence on the firm's ability to attract foreign equity capital. After accounting for potential endogeneity, we document that U.S. and non-U.S. foreign investors exhibit a strong preference for firms with more independent corporate boards. Further, our analysis indicates that the positive relation between board independence and foreign ownership is significantly stronger in countries with less developed legal institutions and poor external protection of investor rights. We suggest that it is in these countries that firm-determined characteristics such as independent boards can be most beneficial in attracting capital. We also find that institutional investors are more responsive to the impact of independent corporate boards than are other types of investors.

Keywords: Foreign ownership; Board structure; Board independence; International corporate governance (search for similar items in EconPapers)
JEL-codes: G34 G38 K2 K4 O1 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (32)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:29:y:2014:i:c:p:143-157

DOI: 10.1016/j.jcorpfin.2014.06.005

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