Boards of a Feather: Foreign Directors around the World

We examine the country-level determinants of foreign director appointments on corporate boards and whether these appointments affect governance quality and firm value. We employ data on cross-border appointments from 38 countries and apply a gravity equation to model the aggregate flows of directors between country. We find that director appointments at the countrypair level are positively related to the two countries’ economic significance and geographic proximity, and negatively to differences in legal institutions and cultural values. Our results are consistent with cultural homophily playing a dominant role in matching directors to firms. When we examine long term changes in firm value around director turnover, we do not find that cultural similarities and differences incrementally explain changes in firm value. Our findings provide evidence as to the limitations of relying on globalization in trade and director reputation to drive improvements in corporate governance internationally.