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The role of corporate board structure in attracting foreign investors

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

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.

Suggested Citation

  • Miletkov, Mihail K. & Poulsen, Annette B. & Babajide Wintoki, M., 2014. "The role of corporate board structure in attracting foreign investors," Journal of Corporate Finance, Elsevier, vol. 29(C), pages 143-157.
    • Handle: RePEc:eee:corfin:v:29:y:2014:i:c:p:143-157
    DOI: 10.1016/j.jcorpfin.2014.06.005
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    More about this item

    Keywords

    Foreign ownership; Board structure; Board independence; International corporate governance;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • K2 - Law and Economics - - Regulation and Business Law
    • K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior

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