Abstract
This study investigates the internationalization of corporate boards, using a sample of 346 non-financial listed Nordic firms during 2001–2008. Given a high level of international activity, these firms have surprisingly few foreign directors. The picture of international expertise changes considerably, however, if we also count the international experience of national directors. The percentage of foreign directors is related primarily to financial internationalization rather than foreign sales, and thus presumably to the monitoring rather than advisory functions. The international experience of the nationals covaries with foreign sales, and increases with the share of foreign directors. Thus both sources of international expertise should be considered when analyzing board internationalization.
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Notes
Not all firms have been listed on the stock exchange since 2001, and so they were included in the sample from the first year of listing onwards. Equally, firms that delisted during the sample period were included until they delisted. However, information on directors’ ages and tenures was not equally rich across all the years of our analysis, so we operate with an unbalanced panel. In particular, we could not obtain much information on the directors of firms that delisted before 2005. Thus we adopt a conservative stance, and state that our sample relates to the population of Nordic firms that were listed on the stock exchanges at the end of 2006.
BoardEx contains in-depth profiles of approximately 500,000 global business leaders, detailing their employment, non-profit and educational affiliations. Networks of directors are mapped out based on the time spent at particular organizations. Unfortunately, information on directors’ nationalities is not always available, meaning alternative sources of data had to be used.
These numbers are higher, that is, 25% in 2001 and 32% in 2008, if we restrict the calculation to firms with available board data and at least one foreign director on their boards. For comparison, Masulis et al. (2012) report this number to be 18% for the S&P1500. To our knowledge, the only other descriptive evidence for European firms is presented in Ruigrok, Peck, and Tacheva (2007). They report that, in 2003, foreigners held 22% of all seats on the boards of Swiss publicly listed firms.
This increase is in part due to the introduction of the “quota law” in Norway in 2006, which required Norwegian public companies to have at least 40% female directors by 2008. Consequently, the share of shareholder-elected female directors in Norway jumped from 6.2% to 39.5% during our sample period, while the increase in other Nordic countries was much lower, from 4.87% in 2001 to 13.4% in 2008.
To illustrate the representation of other nationalities not mentioned above, we present some further numbers for the year 2007 across all four Nordic countries. There were 13 Asian directors (China, India, Japan and Thailand), three South Americans (Chile, Mexico and Ecuador), seven from former Communist countries (Russia, Ukraine and Serbia), three from Australia and eight from Canada.
We have data on the international experience of home-country-based directors only for the year 2007.
It would be useful if we had information on the distribution of a firm's sales by geographic region, since we could then test whether the countries of origin of the foreign directors correspond to the importance of these countries in terms of firm exports. However, Thomson Financials provides such information for only a few of the firms in our sample.
The construction of this proxy was driven by the availability of the ownership data. We have detailed information on the shares, identities and nationalities of only the five largest owners in each firm, and therefore use this to construct our foreign ownership variables. Moreover, owing to constraints on access to the databases, we could collect ownership data only for 2001–2007. For the purpose of this study, the share of foreign ownership in 2008 is therefore assumed to be the same as in 2007.
As an alternative, we control for the median tenure of domestic directors. Schnake, Fredenberger, and Williams (2005) observe that boards dominated by directors with longer tenure are characterized by heightened conservatism and reduced information processing. This might reduce the directors’ ability to recognize or respond to changing business conditions (Vafeas, 2003). A longer tenure among the domestic board members might also reflect a slower pace of board change, and therefore fewer opportunities for new appointments of foreign board members.
Tobin's Q is defined as the market value of firm equity plus the book value of firm assets minus the book value of firm equity, all divided by the book value of firm assets. Intensity of research and development is measured as the percentage of the firm's total sales that are allocated to research and development. Following other studies (Faleye, Mehrotra, & Morck, 2006), we set this to 0 whenever financial information is available for the firm but no information on research and development expenditure is reported.
For Tobit we report the marginal effects for the censored expected value.
In unreported regressions, we re-estimate Model 1, replacing the foreign to total sales ratio with foreign to total assets (as a proxy for international production rather than sales). While we lose around half of our sample, owing to missing data on foreign assets, the result is qualitatively the same as that using foreign sales.
As shown by Zhou (2001), when a firm's contractual environment and governance arrangements change slowly over time, and when its structure reflects a “stable” or long-term relation with firm-specific characteristics, the fixed-effects estimator based on within-firm, year-to-year changes might not detect a relationship, even if one exists.
When splitting the firms into the group of firms that are listed abroad and other firms, we observe that both the share of foreigners on the board and the share of nationals with international experience are, on average, significantly higher in the first group of firms (i.e., 30.4% in comparison with 13.6% for foreign directors; 61.5% in comparison with 39% for the share of nationals with international experience).
The introduction of the quota law in Norway was expected to cause a significant increase in foreign directors, as the Norwegian firms were expected to overcome the limited supply of experienced females by importing them from abroad.
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Acknowledgements
We thank JIBS Departmental Editor David Reeb, and two anonymous referees, for their detailed and constructive comments. We also thank Niels Hermes, Joyce Falkenberg, Larissa Rabbiosi and Marc Steffen Rapp for valuable comments and suggestions. Financial support was provided by the Nordic Innovation Centre and NASDAQ OMX Nordic Foundation.
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Accepted by David Reeb, Area Editor, 6 January 2013. This paper has been with the authors for three revisions.
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Oxelheim, L., Gregorič, A., Randøy, T. et al. On the internationalization of corporate boards: The case of Nordic firms. J Int Bus Stud 44, 173–194 (2013). https://doi.org/10.1057/jibs.2013.3
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DOI: https://doi.org/10.1057/jibs.2013.3