The Impact of Internationalization of the Boardroom on Capital Structure

Ibrahim Yousef (), Hanada Almoumani and Ihssan Samara
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Hanada Almoumani: Department of Business Administration, Faculty of Administrative and Financial Sciences, University of Petra, Amman 11196, Jordan
Ihssan Samara: Department of Business Administration, Faculty of Administrative and Financial Sciences, University of Petra, Amman 11196, Jordan

JRFM, 2020, vol. 13, issue 12, 1-15

Abstract: We develop a theoretical model based on several theories, mainly pecking order theory and theory of information economics, as well as on theoretical arguments provided by economic sociology and psychology to investigate for the first time the impact of the presence of a foreign board member on capital structure. The sample of study covers 3773 non-financial U.S. firms and includes 23,196 observations over the period from 2010 to 2018. We used pooled OLS, fixed effects, random effects, and the general method of moments (GMM) in order to analyze the impact of foreign directors on capital structure after controlling for a range of factors, including size, year, and industry effects. The results of this empirical analysis support the proposed hypothesis. Of particular note is the finding that the proportion of foreign directors on the board correlates negatively with debt structure. Furthermore, we demonstrate that our findings hold up in the face of all appropriate robustness checks. Our study contributes to the existing literature by including an international dimension of board diversity, specifically the influence of foreign directors on corporate capital structure. We argue that increasing international diversity in the boardroom improves both the quantity and quality of the information exchange between insiders and shareholders, thereby reducing adverse selection costs.

Keywords: capital structure; internationalization of the boardroom; corporate governance; foreign directors (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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