Abstract
We examine how similarity between a firm's home country and a director's—shared institutional, legal, and social characteristics, or country-pair homophily—shapes foreign director appointments. Using 169,472 directors across 26,940 boards in 38 countries from 2000 to 2013, we estimate a gravity model that also controls for economic size (GDP) and geographic proximity.
Homophily is a significant determinant of foreign appointments, though economic size matters more: homophily accounts for roughly 20% of the GDP effect, and a one-standard-deviation increase in cultural and institutional proximity is associated with about 22% more foreign directors. Homophily also holds back appointments of directors from high-governance countries to firms in low-governance countries, which may limit the role of board internationalization in the global convergence of governance.
Key Findings
Homophily Shapes Appointments
Shared language, legal origin, and colonial ties between two countries raise the number of cross-border director appointments between them.
Economic Size Matters More
A country-pair's GDP is the strongest predictor of foreign appointments; homophily is about 20% of that effect, comparable to geographic proximity.
A Governance Gap
Homophily limits appointments of directors from high-governance countries to firms in low-governance countries, where outside oversight could matter most.
How We Estimate It
We use a gravity model (OLS, with Poisson pseudo-maximum-likelihood as a check) with origin, destination, and year fixed effects, controlling for GDP and geographic distance.
Figures
Data & Design
Our sample covers 169,472 directors across 26,940 boards in 38 countries from 2000 to 2013. We estimate a gravity model of foreign director appointments that includes origin, destination, and year fixed effects and controls for economic size (GDP) and geographic distance, so country-pair homophily is measured net of the standard gravity forces. Poisson pseudo-maximum-likelihood serves as a robustness check.