directors and firm performance
! ! ! ! ! ! ! Tim!van!Dijk! 6175929! 30!June!2014! ! ! ! ! ! ! ! ! MSc!Business!Studies:!International!Management! University!of!Amsterdam! Final!Version!Master!Thesis! Supervisor:!Dr.!Niccolò!Pisani! Second!Reader:!Dr.!Daniel!van!den!Buuse! !ABSTRACT
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Extensive research has been conducted about specific board characteristics and their association with firm performance. In this field the role of the level of nationality diversity in board of directors is relatively unexplored. Recent findings suggest that appointing foreign directors to the board bring both costs and benefits to the firm. This thesis examines the effect of nationality diversity in board of directors on firm performance measured in the average return on assets. Moreover the moderating effect of firms’ level of internationalization and the corporate governance system the firm is relying on is studied. Using a sample of the Global Fortune 500 companies as listed in 2013 the findings suggest significantly higher levels of performance for firms that have higher levels of nationality diversity in their board of directors. It is argued that this increased performance results from the different perspectives, skills, knowledge, norms and values, and understanding that foreign directors bring to the board, which enhances the boards’ effectiveness of the roles they perform. A firm with a global focus should increase the levels of nationality diversity in board of directors to an even greater degree since the findings suggest that this boosts the positive relationship with firm performance even further.
Keywords: board of directors’ nationality diversity; firms’ levels of internationalization; corporate governance system; firm performance
TABLE OF CONTENT
1. INTRODUCTION ... 4
2. LITERATURE REVIEW: CORPORATE BOARDS, NATIONALITY DIVERSITY IN BOARD OF DIRECTORS, AND FIRM PERFORMANCE ... 7
2.1BOARD OF DIRECTORS ... 7
2.1.1 Roles and functions ... 7
2.1.2 Composition ... 8
2.2NATIONALITY DIVERSITY IN BOARD OF DIRECTORS AND FIRM PERFORMANCE ... 10
2.3INSTITUTIONAL ENVIRONMENT AND CORPORATE GOVERNANCE ... 13
3. THEORETICAL FRAMEWORK ... 17
3.1NATIONALITY DIVERSITY IN BOARD OF DIRECTORS AND FIRM PERFORMANCE ... 17
3.2LEVEL OF INTERNATIONALIZATION ... 19
3.3CORPORATE GOVERNANCE SYSTEMS ... 21
4. METHODS ... 26
4.1SAMPLE AND DATA COLLECTION ... 26
4.2MEASURES ... 27
4.2.1 Dependent variable ... 27
4.2.2 Independent variable ... 27
4.2.3 Moderating variables ... 28
4.2.4 Control variables ... 29
4.3STATISTICAL ANALYSIS AND RESULTS ... 30
5. DISCUSSION ... 39
5.1ACADEMIC RELEVANCE ... 39
5.2MANAGERIAL IMPLICATIONS ... 42
5.3LIMITATIONS AND SUGGESTIONS FOR FUTURE RESEARCH ... 43
6. CONCLUSION ... 45 ACKNOWLEDGEMENT ... 48 REFERENCES ... 49 ! ! LIST OF FIGURES FIGURE 1.CONCEPTUAL MODEL ... 25
FIGURE 2.MODERATING EFFECT GLOBAL FOCUS ON FIRM PERFORMANCE ... 35
! LIST OF TABLES TABLE 1.DISTRIBUTION OF FIRMS’ HOME COUNTRIES………..26
TABLE 2.DESCRIPTIVE STATISTICS; MEANS, STANDARD DEVIATION AND CORRELATIONS ... 32
TABLE 3.REGRESSION RESULTS (BOD NATIONALITY DIVERSITY (DIFNAT/TOTBOD), LEVEL OF FIRMS’ INTERNATIONALIZATION, CORPORATE GOVERNANCE SYSTEMS, AND FIRM PERFORMANCE) ... 37
TABLE 4.REGRESSION RESULTS (BOD NATIONALITY DIVERSITY (INTMEM/TOTBOD), LEVEL OF FIRMS' INTERNATIONALIZATION, CORPORATE GOVERNANCE SYSTEMS AND FIRM PERFORMANCE) ... 38
1. INTRODUCTION !
In today’s increasingly integrated world (Kaczmarek & Ruigrok, 2013) the performance of global firms depends on their ability to cope with environments who differ culturally and institutionally, to coordinate geographically dispersed resources, and to leverage innovations across national borders, which results in a complex managerial decision making environment (Carpenter, Sanders & Gregersen, 2001). A critical determinant of a firm’s ability to successfully deal with these sorts of complexity is its governance structure (Sanders & Carpenter, 1998). The board of directors has several functions and plays an important role in the firm’s corporate governance system and decision-making process (Masulis, Wang & Xie, 2012).
Large corporations have a board of directors as an instrument for internal control and as a safeguard to both equity capital and managerial employments contracts (Baysinger & Hoskisson, 1990). The literature states that there are three major roles for the board of directors; the monitoring, service and advisory (Masulis, et al., 2012). Nowadays, extensive research has pointed at certain characteristics of the board of directors, such as the size, independence, composition and of the members of these boards, that can affect firm performance. However, until now there is not a clear homogeneous view (Johnson, Schnatterly & Hill, 2013).
Multinational corporations (MNCs) have to fill in the board of directors and executive positions and their critical choice is either to recruit solely from their home country or to broaden the search to individuals from other countries (Van Veen & Marsman, 2008). The board of directors and the top management team (TMT) are strongly related to each other since the former nominates the members of the latter. However, until now research has mainly focused on nationality diversity in TMTs.
Despite an increase of foreigners in the boards of the world’s largest multinationals during the last years the levels remain rather low (Kaczmarek & Ruigrok, 2013; Van Veen & Marsman, 2008). An increase of nationality diversity in corporate boards tends to enrich the supply of ideas, unique approaches, and knowledge available within a group, which enhances creativity, quality of decision-making and performance (Van Veen, Sahib & Aangeenbrug, 2013). Having said that, the level of internationalization of the board of directors remains relatively neglected in management research (Oxelheim, Gregoric, Randøy & Thomsen, 2013; Van Veen & Marsman, 2008).
The results of the few studies that address the internationalization of the board of directors provide mixed results. They suggest that the appointment of foreign directors to the board can be seen as a double-edged sword, bringing both benefits and costs to the firm. On the one hand, the appointment of foreign directors can provide valuable international expertise and advice to firms (Masulis, et al., 2012; Oxelheim & Randøy, 2003), access to resources, and the assurance that the firm complies with institutional pressures (Peng, 2004). On the other hand, they apt to be less effective in overseeing management and therefore weakening boards’ monitoring and disciplining roles (Masulis, et al., 2012).
To fill this gap in the literature this thesis sheds more light on the nature of this relationship. Moreover, existing research suggests that both corporate governance systems and firms’ level of internationalization affect the degree of nationality diversity in board of directors and firm performance. However, no previous study has investigated the possible moderating role of these variables on the relationship between nationality diversity in board of directors and firm performance. It can be expected that certain corporate governance systems represent better opportunities for
firms to take advantage of board of directors’ nationality diversity than others. Besides, studies found that firms include more foreigners and nationals with international experience in their boards when they face challenges in their process of internationalization (Oxelheim, et al., 2013). Though, whether or not a highly internationalized firm can benefit more from high levels of nationality diversity in the board of directors remains unclear.
Findings of existing research are hard to generalize since they only focus on one country or small regions. Therefore, this thesis focuses on the 500 largest multinational corporations (MNC) in the world as included in the 2013 Global Fortune 500 list. Consequently, it provides a better understanding of the internationalization patterns in the board of directors and their association with firm performance around the globe.
This thesis is structured as follows. First, in the next section the relevant literature about the board of directors, nationality diversity in board of directors and the association with firm performance, and the institutional environment is discussed. Subsequently, a theoretical framework with the development of the hypotheses and propositions is stated in section 3. The data collection, the variables and the method that are used to carry out this research are discussed in the methodology section. The results from the statistical analysis are presented in the results section. The interpretation, academic and managerial implications, and the limitations of the findings are discussed in section 5. Finally, section 6 contains concluding remarks.
2. LITERATURE REVIEW: CORPORATE BOARDS, NATIONALITY DIVERSITY IN BOARD OF DIRECTORS, AND FIRM PERFORMANCE
2.1 Board of directors
Board of directors are large, elite, and episodic decision making groups that face complex tasks pertaining to strategic issue processing. It is the formal link between the shareholders of a company and the managers concerned with the day to day functioning of the firm (Rivas, 2012), and has the legal authority to hire, fire, and compensate top management, and safeguard invested capital (Baysinger & Hoskisson, 1990). It is a critical element in a firm’s corporate governance system (Masulis, et al., 2012), since they are the first line of defence against the self-serving behaviour of CEOs (Combs, Ketchen, Perryman & Donahue, 2007). Board of directors can increase shareholder value when they are capable of monitoring management, can make independent judgements on managerial performance, and reward managers on the basis of the before mentioned judgements and evaluation (Baysinger & Butler, 1985).
2.1.1 Roles and functions
Agency theorists view the board as an effective element of corporate governance and thereby internal control (Baysinger & Hoskisson, 1990). A board has three interrelated roles in an organization: service, strategy and control. The service or resource provision role concerns representing the firm’s interest in the community and develop a linkage between the firm and its external environment. Purpose of this role is to enhance a firm’s identity, reputation, commitment to mission, standing in the community, and ensure company survival. To improve the competitive position of the firm and maximize shareholders’ wealth, the board performs a strategic or
advisory role. They develop a company’s mission and select and implement a strategy. Lastly, corporate control or the monitoring role by the board includes selection of senior executives, monitoring, evaluating and rewarding executive performance, and using their power to protect shareholders rights and interest (Oxelheim, et al., 2013; Pearce & Zahra, 1992; Rivas, 2012). Control and service are the most relevant tasks that the board has to perform (Rivas, 2012). The effectiveness of the board of directors in creating shareholder value and in corporate decision-making depends on how well the board performs the before mentioned roles and functions (Peng, 2004). The effectiveness and thereby firm performance has often been associated with the composition of the board.
2.1.2 Composition
The composition of a board is a critical element in the ability of the board to impact firm performance, however there is no consensus in the literature about how a board should look like and what kind of people should form it (Johnson, et al., 2013). The size of a board is strongly and positively associated with firm size, moreover, firms handle the increased complexity and dependencies associated with internationalization by adding more members to the board (Sanders & Carpenter, 1998). According to the agency theory the structure and thereby the composition of the board arise from the choices that economic actors make in response to the governance issues they face in the firm. The resource dependency theory on the other hand considers board composition as the results of a rational organizational response to the conditions of the external environment (Oxelheim, et al., 2013).
Board composition can refer to the number of directors and type of members that are either insiders or outsiders. The former consists of members of the top management team and employees of the company or its subsidiaries, the latter have
no such association and can be separated into affiliated or non-affiliated (Pearce & Zahra, 1992). Jensen and Meckling (1976 in Johnson et al., 2012) first made a distinction between “non-independent” (insider) directors and “independent” (outsider) directors on boards. Outsider directors are appointed to the board by a firm either to tap into the resources where these directors have access to or to comply with institutional pressures (Peng, 2004). Firms whose board is dominated by outsider directors is thought to help protect shareholders from CEOs’ self-serving behaviour by monitoring them and offering them incentives to act in shareholders’ interest (Combs, et al., 2007). However, outsider directors might have a comparative disadvantage compared to insider directors. As it is difficult for them to make a distinction between poor management or forces that lie beyond management control that affect the financial performance of the firm (Baysinger & Hoskisson, 1990). Hence, recent meta-analyses have not showed any cohesion in whether or not boards dominated by outsider directors have a positive influence on firm performance (Combs, et al., 2007).
Composition can also refer to characteristics of directors that fall in three general categories: Demography, human capital, and social capital (Johnson, et al., 2013). Demography refers to the attributes of directors including age, which is a proxy for experience and risk aversion, education, that is thought to influence directors’ cognition and decision-making, gender, race, and ethnicity, all affect board cognition, dynamics, and decision-making. Human capital are the skills and experience that directors bring to the decision-making process. This includes industry experience, which influences how directors process information and may affect which directors have influence in the board. Furthermore, this category consists of experience as CEO, venture capital experience, financial expertise, experience with
specific activities, human capital heterogeneity, and organizational tenure. Lastly, social capital refers to how social relationships affect both individual directors and the board as a whole and includes; ties to other firms, personal relationships and affiliations, and social standing (Johnson, et al., 2013).
The country of origin of directors is another relevant factor in the composition of corporate boards. Firms include more foreigners and nationals with international experience in their boards when they face challenges in their process of internationalization (Oxelheim, et al., 2013). If MNCs are moving towards transnationality in terms of different characteristics, nationality should also cease to play a role in terms of ownership and managerial control. Therefore MNCs should increasingly appoint managers with different national backgrounds to their boards, which are their national and international centers of economic power (Van Veen & Elbertsen, 2008). This is highlighted by research from Van Veen and Marsman (2008) and Kaczmarek and Ruigrok (2013) that show an increase in foreign directors on MNCs’ boards. Consequently, in terms of board composition, MNCs are moving from being “ethnocentric” to “geocentric” (Perlmutter, 1969, in Van Veen & Elbertsen, 2008).
2.2 Nationality diversity in board of directors and firm performance
Entering new foreign markets with new complexities demands a more heterogeneous team with a broader knowledge base and to integrate more international aspects in the board (Van Veen, et al., 2013). Appointing foreign directors to the board has several advantages for a firm. Oxelheim et al. (2013) and Rivas (2012) note that these directors are better able to understand the international business environment and compare the firm with its global competitors. They can provide valuable knowledge about international employees, suppliers and customers,
expertise (Masulis, et al., 2012), and contribute by networking with global suppliers, buyers and providers of financial resources. Additionally, their presence provides a signal about the firm’s acknowledgement of foreign resources and markets, and is an indicator for the extent of globalization that is taking place (Van Veen & Elbertsen, 2008). This implies that companies with a higher percentage of foreign directors are more likely to further expand their business abroad, attract foreign investors and list their shares on foreign stock exchanges, resulting in a positive association between the internationalization of the firm and its board (Oxelheim, et al., 2013). This is also stressed by Van Veen and Elbertsen (2008) who find a significant relationship between the number of countries a MNC is operating in and the level of nationality diversity in board of directors. Besides that study, Oxelheim and Randøy (2003) examined the effect of Anglo-American directors in the board on firm performance in terms of firm value. Their findings corroborate that when a firm in a partly segmented capital market includes directors from the Anglo-American governance system to its board, it enhances firm performance and leads to a higher value of the firm.
However, there are also studies that emphasize the disadvantages of having foreign directors in the board. For instance, Masulis et al. (2012) argue that foreign members are less effective in their monitoring role. Furthermore, they can be cut off from local networks that can provide valuable information. Lastly they are less familiar with laws, rules, governance structures, and management methods. Higher levels of nationality diversity in board of directors can also be costly since it can result in cooperative problems on a board due to fault-lines and social categorization processes (Van Veen, et al., 2013). Therefore Van Veen et al. (2013) note that most firms prefer to recruit board members from countries that are institutionally and culturally close to minimize these costs and risks.
The effects of board diversity, including several individual characteristics of the board members, have been used to explain different aspects of firm performance (Hambrick and Mason, 1984; Carpenter, Geletkanycz and Sanders, 2004, in Van Veen & Elbertsen, 2008). As such, board composition is used as an indicator for quality of strategic decision-making that should result in higher performance levels of firms (Van Veen & Elbertsen, 2008). Oxelheim et al. (2013) find that the percentage of foreign directors is most of all related to financial performance, and more associated with the monitoring role rather than with the advisory role. Furthermore, they find that firms with high percentages of foreign sales, foreign ownership, low ROA, high investments in R&D, whose stocks are listed on foreign stock exchanges, and who are large in size have a higher percentage of foreign directors in the board. Masulis et al. (2012) on the other hand argue that foreign board members can strengthen the advisory role of boards since they provide first-hand knowledge and access to foreign networks. The contributions through the advisory role include region-specific expertise that is of great value to cross-border acquirers in evaluating targets and assessing deal merits. Furthermore, when a certain region becomes more important for a MNC and when a foreign director is originally from this region the contributions to firm performance increase. However, when the foreign director is not affiliated with the region the benefits do not outweigh the costs related to the lack of monitoring (Masulis, et al., 2012).
Although most of the extant research suggests a positive relationship between board of directors’ nationality diversity and firm performance, there is no full consensus on this in the literature.
2.3 Institutional environment and corporate governance
The decision to incorporate foreign members in the board of directors clearly represents a firm-level decision. Having said this, the corporate governance system used in the country where the headquarter is based has a strong influence on such process (Van Veen & Marsman, 2008). Internationalization increases complexity for a firm, as expanding beyond its home country or domestic market results in greater diversity in cultures, customers, competitors, and regulations (Sanders & Carpenter, 1998). According to Van Veen and Marsman (2008), nationality diversity in MNCs’ boards is explained by country differences such as the structure of the managerial labor market, the corporate governance system, and ownership structure. These differences can affect how relatively easy it is for foreigners to become member of the board of directors.
Corporate governance refers to the distribution of rights and power over decision-making among different participants in the firm (Aguilera & Jackson, 2010). The definition of Blair (1999, p. 3) is probably the most complete: “the whole set of legal, cultural and institutional arrangements that determine what publicity traded corporations can do, who controls them, how that control is exercised and how the risks and returns from activities they undertake are allocated”. Moreover it includes the legal, institutional, and cultural mechanisms that help owners and other stakeholders to exercise control over corporate insiders and management (Oxelheim & Randøy, 2003).
Broadly, a firm can choose from one of three corporate governance systems: the Anglo-American system, the German system, or the Japanese system. Differences between these systems can be extensive but they are small compared to their
differences with other countries (Schleifer & Vishny, 1997). The German system for example is known for its two-tier structure, with a management and a supervisory board, which results in a separation between decision management and decision control. Contrary is the Anglo-American system with a one-tier board with a distinction between executives and nonexecutives who work closely together. Managing the firm is the responsibility of the executives, whereas the nonexecutives monitor them and assist in strategy development (Van Veen & Elbertsen, 2008). The Japanese system is primarily insider-dominated (Schleifer & Vishny, 1997). From these three systems the Anglo-American is widely known as the most demanding (Oxelheim & Randøy, 2003). However, all three are considered among the best corporate governance systems in the world (Schleifer & Vishny, 1997).
The corporate governance regime or system that is in place in the home country of the MNC defines the rules and procedures that the firm has to follow. As such, these institutional rules and procedures influence the accessibility of managers with different national backgrounds to the board (Van Veen & Elbertsen, 2008). Firms can either choose to recruit managers from their home country or managers from other countries with other cultural and institution backgrounds (Van Veen & Marsman, 2008). Once there are foreign directors in the board, the corporate governance systems used in the home country of these members have influence on the (lack of) monitoring. This is highlighted in the study of Masulis et al. (2012) where the focus lays on U.S. corporations that are known for their high shareholders rights and law enforcement. Many foreign directors in those corporations are from countries with weaker investor protections and legal systems. Since they are used to lower standards they might not notice when managers serve in their self-behaviour or when there are other signs of poor governance. As such board members originating from other
countries might have negative effects on decision-making and thereby firm performance (Masulis, et al., 2012). Consequently, firms prefer foreign directors on the board that originate from countries that have a low cultural, institutional, and geographical distance with the country of origin (Van Veen, et al., 2013). Having said that, board members originating from countries with different corporate governance systems might also have a positive influence on firm performance. Oxelheim and Randøy (2003) find that including representatives from the Anglo-American corporate governance system on the firms’ board enhances the firm value. As that system is seen as the most demanding in the world. This is most beneficial for firms originating from a country with a segmented or partly segmented capital market (Oxelheim & Randøy, 2003).
The ownership structure turns out to be important for board internationalization and national diversity as well. In the study of Oxelheim et al. (2013) ownership structures are more concentrated among the Nordic firms than in Anglo-American countries. This indicates that agency problems between shareholders and managers are smaller in the Nordic sample, and that the lower monitoring abilities of foreign directors may be less of a concern because large owners exercise effective control. Likewise, Van Veen and Elbertsen (2008) state that ownership by large blockholders reduces the accessibility of outsiders to powerful positions because of their dominance in annual meetings.
To sum up, in the field of board composition the aspect of nationality diversity in board of directors is relatively unexplored, especially compared to nationality diversity in TMTs that has received more attention in the literature. Among the few contributions, the two studies by Masulis et al. (2012) and Oxelheim and Randøy (2003) show that having foreign directors on the board bring both costs and benefits
to the firm. The former study that is focused on U.S. corporations concludes that having foreign directors results in poorer firm performance, whereas Oxelheim and Randøy (2003) find that Nordic firms with Anglo-American board members have a significantly higher value than firms that have not. Therefore, this study aims to clarify the relationship between nationality diversity in board of directors and firm performance. It is known that the governance system in the home country affects the accessibility of foreign directors to corporate boards (Van Veen & Marsman, 2008). Nonetheless, the effect of corporate governance systems on the relationship between board of directors’ nationality diversity and firm performance is yet unknown. The same applies for both the scale and scope of firms’ internationalization. Studies have indeed focused on the direct relationship between firm internationalization and board internationalization (Oxelheim, et al., 2013) but have not paid attention to possible moderation effects.
3. THEORETICAL FRAMEWORK
3.1 Nationality diversity in board of directors and firm performance
Individuals grow up in societies with both formal and informal institutions that influence how they interpret information and act on strategic opportunities and threats. The informal institutions, or national culture, are norms and values held within a society that shape social interaction. The formal institutions of a country consist of the economic and political rules and are explicit and codified. Therefore, the country of origin with its institutions guides a person in his orientation and decision-making (Nielsen & Nielsen, 2013). Most of the research addressing nationality diversity in corporations focuses on top management teams. Nielsen and Nielsen (2013) find that including foreigners in TMTs result in multiple views on strategic issues, increased knowledge and experience with different environments and ways of doing business and therefore can result in higher levels of firm performance. Interesting is to look one step further in the organization, namely to the board of directors that nominate the TMT.
Organizational effectiveness results from the firm’s ability to acquire and maintain resources. Board of directors play an important role in this effectiveness by linking the organization with its external environment. Board member networks and contacts are important in performing this role (Ruigrok, Peck & Tacheva, 2007). Foreign directors can strengthen this service role by providing valuable knowledge about international employees, suppliers and customers, expertise (Masulis, et al., 2012), and contribute by networking with global suppliers, buyers and providers of finance. Besides, Oxelheim et al. (2013) and Rivas (2012) note that these directors are better able to understand the international business environment and compare the firm
with its global competitors. When foreigners are entering the board they not only bring these different perspectives, skills and knowledge, but also different norms and values, and understanding that are vital for their ability to provide advice and insights into the organization (Ruigrok, et al., 2007). Therefore, having more nationalities on the board especially enhances and strengthens the service and advisory role they are performing. When these roles are performed better the effectiveness of the board in the decision-making process is higher and shareholder value increases accordingly.
Existing research shows that multinational groups outperform homogenous groups in range of perspectives and alternatives generated (Nielsen & Nielsen, 2013). However, diverse or multinational teams can suffer from cooperative problems due to fault-lines and social categorization processes (Van Veen, et al., 2013), which can result in lower cohesion and slower decision-making. Another disadvantage that is often stated is the fact that nationality diversity in board of directors is costly because of the lack of monitoring and their inability to attend board meetings due to geographical distance (Masulis, et al., 2012). However, Oxelheim and Randøy (2003) find that appointing foreign directors originating from a country with an Anglo-American corporate governance system results in a significantly higher firm value.
Hence, taking both the costs and benefits into consideration, it is expected that the advantages related to the increased knowledge and information base outweigh the disadvantages concerned with the lack of monitoring and possible social categorization processes. Having more foreigners in the board of directors leads to superior firm performance through limited ‘groupthink’, their higher ability to solve complex tasks and arriving at more innovative solutions (Hambrick, Davison, Snell & Snow, 1998) and access to and more thorough processing of relevant information.
Hence:
Hypothesis 1. Board of directors’ nationality diversity is positively related to firm performance.
3.2 Level of internationalization
Higher levels of firm internationalization results in increased levels of complexity and dependencies. Firms respond to these challenges by adding more foreign members to the board (Oxelheim, et al., 2013; Sanders & Carpenter, 1998). Nielsen & Nielsen (2013) find that the benefits of nationality diversity in TMTs vary depending on the strategic complexity a firm faces. The challenges, like information-asymmetry, coordination, managerial complexity and governance demands increase when a firm has higher amounts of foreign sales (Oxelheim, et al., 2013). These complexities influence the ability of the board to perform the roles they have. International operations increase the information-processing demands that are also driven by the need for the coordination of resources from several environments differing culturally, institutionally and competitively from the firm’s home country (Sanders & Carpenter, 1998). Foreign directors possess the necessary knowledge and contacts in foreign markets in order to link the firm to the different contexts of the countries in which it operates (Ruigrok, et al., 2007). As stated above diverse team are more effective than teams that consist only of national members. A highly internationalized firm can benefit from the diverse institutionally embedded knowledge and experiences resulting from the nationality diversity in board of directors. MNCs that have higher levels of internationalization should be best positioned to take advantage of a higher level of nationality diversity in their board of directors.
Hypothesis 2. Ceteris paribus, firm's level of multinationality positively moderates the relationship between board of directors’ nationality diversity and firm performance.
Rugman and Verbeke (2004) studied the penetration level of the 500 largest MNCs in markets across the globe. They find that most MNCs are actually regional based instead of global when considering their dispersion of total sales. From the 500 companies 72 per cent of all sales were in their home region (Rugman, 2003). This shows that most of these firms operate and trade within their home region of the triad regions; North American Free Trade Association, the European Union, and Asia Pacific (Rugman, 2003; Rugman & Verbeke, 2004). These triad blocks emerged because of government regulations and cultural differences (Rugman & Hodgetts, 2001). The actual picture shows an increasing regionalization instead of globalization (Rugman, 2003). Rugman (2003) found that for the 380 firms for which geographical sales data was available only nine were ‘global’. Further, twenty-five firms were ‘bi-regional’, eleven ’host region oriented’, and 320 ‘home region orientated’. Consequently, the strategies of these firms are triad/regional with attention to local consumers rather than global and uniform (Rugman & Hodgetts, 2001).
When firms have a global focus (versus home region), i.e. they have at least 20% of their sales in all triad regions (Rugman & Verbeke, 2004), they consequently have to deal with greater diversity in cultures, customers, competitors and regulations (Sanders & Carpenter, 1998). In order to deal with these complexities firms can appoint more foreigners to the board (Van Veen, et al., 2013). Globally focused firms can benefit more from nationality diversity in board of directors than firms that are home region orientated, since foreign directors offer first-hand knowledge and access
to foreign networks (Masulis, et al., 2012). They also provide extensive knowledge and experience about different institutional environments (Nielsen & Nielsen, 2013). The value of this is shown by Masulis et al. (2012) who state that contributions to firm performance increase when foreign directors in the board originate from other valuable regions the firm operates in. According to Van Veen and Elbertsen (2008) high levels of nationality diversity in board of directors should also be an advantage for companies that operate in multiple countries or regions at the same time. Accordingly, the bigger the dispersion of total sales the more nationality diversity in board of directors boosts the performance of a globally focused firm versus one that is home region orientated. This results in the following proposition:
Hypothesis 3. Ceteris paribus, firm's global (versus home region) focus positively moderates the relationship between board of directors’ nationality diversity and firm performance.
3.3 Corporate governance systems
The study conducted by Van Veen and Marsman (2008) shows that company differences, like their size or levels of internationalization, matter less in terms of determining to whom board seats are accessible than the institutional characteristics of a country. These formal institutions constrain and regulate economic behavior, and they affect information processing and problem solving in executive decision-making (Nielsen & Nielsen, 2013). Further, they influence the accessibility of directors with different national background to the board through their rules and procedures (Van Veen & Elbertsen, 2008)
Every country has its own rules and systems on how to recruit board members, which are incorporated in the corporate governance system that ultimately affects the
nationality diversity in corporate boards (Van Veen & Elbertsen, 2008). Successful corporate governance systems, such as those of the United States, Germany, and Japan, combine significant legal protection of at least some shareholders with an important role for large investors (Schleifer & Vishny, 1997). Comparing these widely known governance systems, the German system is the least likely to have high levels of nationality diversity in the board of directors. The combination of employee representation in the board, the concentration of ownership in large block shareholders, and the preference for long-term relationships create different structural opportunities for native and non-native directors. Hence, the German governance regime has structural features that should make it less likely that non-natives are appointed in the supervisory boards. Reasons for this are the high amounts of employee and shareholder representatives (Van Veen & Elbertsen, 2008).
The German governance system is known for its two-tier system. This system results in a clear separation between decision management, by the board of management, and control management, by the supervisory board. Consequently there is no possibility for a CEO duality (Van Veen & Elbertsen, 2008). Within this structure directors have less influence on the daily management and strategy implementation and consequently on the performance of the firm. Moreover, when there are foreign directors on the board it is not likely that they have powerful positions, since the large block holders have considerable influence during annual meetings. This can prevent the foreign directors from having a decisive input in their monitoring and advisory role. Nationality diversity in board of directors still results in positive effects on firm performance. However, when a firm originates from either Germany or Austria and relies on the German corporate governance system it does not enhance this relationship considering the ownership structure and the strong
separation between the supervisory and management board. Therefore it is expected that the German corporate governance system does not facilitate the positive effect of nationality diversity in board of directors on firm performance. Accordingly, this results in the following hypothesis:
Hypothesis 4a. Ceteris paribus, the reliance on a German corporate governance system negatively moderates the relationship between board of directors’ nationality diversity in board of directors and firm performance.
Corporate boards in Japan are quite passive except in extreme circumstances and are primarily insider-dominated. This can be an indication of the strong national culture and orientation of the country. The ownership structure is not nearly as concentrated as in Germany, however large cross-holdings as well as share holdings by major banks represent the norm (Schleifer & Vishny, 1997). Firms with large shareholders are more likely to replace managers in response to poor performance than firms without them. In Japan and Germany the power of banks versus corporations is highly significant because banks vote significant blocks of shares, sit on boards of directors, play a dominant role in lending, and operate in a legal environment favorable to creditors. Therefore they have the ability to influence corporate management (Schleifer & Vishny, 1997). Corporate boards in Japan are mostly native or insider dominated and banks and other blockholders have a major influence on corporate management. Foreign directors, if present, are less likely to have a significant contribution with their knowledge on the roles that the board is performing in the organization considering the strong national culture and focus. Therefore it is expected that a firm that is relying on a Japanese corporate governance
system reduces the positive effect of nationality diversity in board of directors on firm performance.
Hypothesis 4b. Ceteris paribus, the reliance on a Japanese corporate governance system negatively moderates the relationship between board of directors’ nationality diversity in board of directors and firm performance.
In countries in which the Anglo-American model represents the standard it is easier for foreigners to access the board than in countries that rely on another corporate governance system. Reason for this is that shares in the Anglo-American system are mostly widely held and not concentrated by large blockholders such as banks, families or the state (Schleifer & Vishny, 1997). Besides, shares in these countries are easy to acquire by both national and international investors (Van Veen & Elbertsen, 2008). Once these investors have a substantial amount of shares, they have easy access to the board because of the high shareholder rights (Van Veen & Elbertsen, 2008).
In the Anglo-American model the relationships among firms and other actors are primarily coordinated through competitive markets and the decision management and control are less clearly separated than in the German system (Van Veen & Elbertsen, 2008). In the board of directors of these firms, executives and non-executives work closely together and are collectively responsible for the firm performance (Schleifer & Vishny, 1997). It is common in this system that the CEO of the company is also in the board of directors or even its chairman.
The Anglo-American model is known as one of the most demanding corporate governance systems (Oxelheim & Randøy, 2003). This means that directors are
stimulated to perform at their best and according to the governance rules of the firm. Different nationals work together in an environment that is clear according to rules, expectations and procedures. This implies that foreign directors can positively contribute to a better functioning of the board and thus to a better firm performance. These contributions are made through their advisory, monitoring and strategic role with their knowledge, experience, and networks while being incorporated in a governance system in which the board of directors and the top management team work closely together. Consequently a firm originating from an Anglo-American governance system further enhances the positive relationship between board of directors’ nationality diversity and firm performance.
Hypothesis 4c. Ceteris paribus, the reliance on an Anglo-American corporate governance system positively moderates the relationship between board of directors’ nationality diversity and firm performance.
The previously discussed hypotheses result in the conceptual model as shown in Figure 1.
Figure 1. Conceptual model
! !!!! ! ! H1! ! ! ! ! ! ! ! ! Corporate!governance!system:! 3 German!H4a! 3 Japanese!H4b! 3 AngloSAmerican!H4c! ! Nationality!diversity! in!BoD:! ! S Different! nationalities! S Foreign! directors! ! Firm! performance:! S!Average!ROA! Level!of! internationalization! S Scale!H2! S Scope!H3! !
4. METHODS
4.1 Sample and data collection
This study uses a cross-sectional research design to examine the effect of board of directors’ nationality diversity on firm performance including two moderators, which are the firms’ level of internationalization and the corporate governance system the firm is relying on. The sample is based on the Global Fortune 500 companies as listed in 2013. These companies from all around the globe are ranked according to their revenues from large to small at the end of 2012. In general the majority of the worlds’ largest 500 companies are multinational corporations that means that they produce and/or distribute products and/or services across national borders (Rugman & Verbeke, 2004). Furthermore, the companies within this sample belong to all sorts of industries. The use of this sample offers great insight in the levels of nationality diversity in board of directors, level of
internationalization and performance of MNCs around the world. The firms are situated in 38 different countries. Most originate from the United States (26,6%) followed by China (16,8%), Japan (12,4%), France (6,2%), Germany (5,8%), and the United Kingdom (5,2%). Accordingly, Table 1 shows the 10 leading home countries in the surveyed sample.
As a primary data source, the annual reports of 2012 and the Orbis database are used, if necessary supplemented with information available on a set of Internet
Table 1. Distribution of firms' home countries Country Frequency Percentage
United States 133 26.6 China 84 16.8 Japan 62 12.4 France 31 6.2 Germany 29 5.8 United Kingdom 26 5.2 Korea, Republic of 14 2.8 Switzerland 14 2.8 Netherlands 11 2.2 Canada 9 1.8 Others 87 17.4 Total 500 100 !
sources. These sources include the company websites, ‘ZoomInfo’ (zoominfo.com) and ‘NNDB Mapper’ (nndb.com). Bureau van Dijk’s Orbis Database is used in several studies and is a suitable firm-level database because it is one of the most comprehensive and inter-temporal databases containing detailed information about public and private companies all over the world (De Jong & Van Houten, 2014).!
4.2 Measures
4.2.1 Dependent variable
The dependent variable in this thesis is firm performance. To determine how a firm is performing the return on assets (ROA) is used, which is defined as the ratio of earnings before taxes. In order to reduce bias of single year outliners, the average ROA between 2008 and 2012 is used. Most board members are appointed for multiple years, so they also had sufficient influence on firm performance on the years before 2012. Usage of ROA as a measure for firm performance is in line with previous studies (Chao & Kumar, 2010; Masulis, et al., 2012; Nielsen & Nielsen, 2013). Other studies have also used return on equity (ROE) and sales (ROS) to measure firm performance (Peng, 2004). However, ROA and ROS are strongly correlated and have generated very similar findings in research (Chao & Kumar, 2010). Consequently, using either ROS or ROA is sufficient for the reliability of the results.
4.2.2 Independent variable
The independent variable used in this thesis is nationality diversity in board of directors. The data collected for each corporation for the year 2012 includes relevant board variables, such as the nationality of the CEO and directors, gender, year of birth, and tenure. The board of directors is defined as such or as the supervisory board in the annual reports. Directors’ nationality is defined on the basis of citizenship and
is identified from information stated in the annual report or in the Orbis database. In some exceptional cases in which it is not possible to retrieve the nationality of a board member different sources are used to reconstruct their country of birth. After that a deliberate judgment is made by taking the name, surname, place of education, and former work experience into consideration. A director is considered foreign when his or her citizenship is different than the country of origin of the firm.
The first and primary operationalization of nationality diversity in board of directors is the number of different nationalities represented in the board to total board members (difnat/totbod). This percentage can be considered as being the scope of the nationality diversity in the board of directors and the closest measurement of board of directors’ nationality diversity. To get more insight in the actual level of internationalization of the board of directors’ the independent variable is measured by the ratio of foreign directors to total board members (intmem/totbod). This operationalization offers insight in the scale of board of directors’ nationality diversity.
4.2.3 Moderating variables
The two moderators are firms’ level of internationalization and the corporate governance system a firm is relying on. The level of internationalization, both scale and scope, of the firm is measured by respectively the average of foreign sales to total sales and the geographical dispersion of total sales. This thesis focuses on the distinction between a global and home region focus. The study of Rugman & Verbeke (2004) reports the penetration level of MNCs in markets across the globe, however they mainly focus on the triad regions. The information collected includes data about the dispersion of sales in six regions; North America and Canada, Europe, Asia, South and Central America, Oceania, and other regions. A firm is considered to have a
global focus when it has sales of at least 20 per cent in a minimum of three of the above-mentioned regions. The separation between scale and scope offers greater insight in the actual levels of internationalization, since firms can have 80 per cent of foreign sales (scale) but all of these foreign sales can take place in a foreign country in their home region (scope). This shows that a firm characterized by a high scale of internationalization can still operate at a regional rather than global level.
Lastly, the corporate governance system that is expected to play a moderating role in the relationship between nationality diversity in board of directors and firm performance is defined by the governance system in the firm’s country of origin. Consequently, the governance system used in a country is also the system that is incorporated and defines the rules for that particular firm. The country of origin of a MNC is operationalized as the country where the main headquarter is located. The German system includes firms located in Germany and Austria, firms based in America and Canada are considered to rely on the Anglo-American system, and the Japanese system is used by firms with their headquarter in Japan. All three are used as moderators. The three systems are defined as dummy variables that equal one if a firm originate from one of the corresponding countries and zero otherwise.
4.2.4 Control variables
The first variable that is controlled for is firm size, which is a common control variable and is linked to organizational outcomes. Larger firms are typically more capable of exploiting economies of scale, which in turn allows a higher return on assets and sales (Chao & Kumar, 2010). To determine the size of a firm the logarithm of the total number of employees is used. The age of a firm, measured as years after incorporation, is included as a second control variable since it can influence short and long-term performance. Older firms may still use outdated management techniques
and/or obsolete technology and therefore have lower performance levels than younger firms (De Jong & Van Houten, 2014). The third control variable considering MNC characteristics is gearing. Gearing is a measure of financial leverage and shows the degree to which firms’ activities are funded by owners’ funds versus creditors’ funds. The higher the ratio, the higher the debt of a firm and therefore it is considered more risky. Since companies with high gearing have to continue to service their debt regardless of how bad sales are, they are more vulnerable to downturns in the business cycle and can in turn report worse performance indicators.
The competitive-forces approach expands on classic economic theory by postulating that predominantly external industry factors determine the performance of the firm, such as industry profitability (De Jong & Van Houten, 2014). Therefore, industry is used as a fourth control variable. Three broad categories are constructed. The primary sector includes firms that work with natural resources. The secondary sector is mainly focused on production and manufacturing, while the companies in the tertiary sector are service orientated. The three sectors are defined as dummy variables that equal one if a firm belongs to the sector and zero otherwise. Industry membership is often used in other research as a control variable (Ruigrok & Wagner, 2003).
4.3 Statistical analysis and results
The descriptive statistics of the dependent, independent, and control variables used are presented in Table 2. The variables are tested for multicollinearity by assessing the correlations between all the predictor variables. Table 2 shows that, as expected, the two operationalizations of nationality diversity in board of directors are strongly related. Having said that, this generates no harm as they are used in different
models. None of the other predictor variables correlate very highly (above 0.7). Multicollinearity can exists when there are high levels of correlation (Field, 2009). Looking at the correlations to check for multicollinearity is a good first step but it can miss the more subtle forms of multicollinearity. Therefore the variance inflation factors (VIF) and the tolerance levels are calculated. The tolerance level indicates how much of the variability of a specific independent variable is not explained by the other independent variables (Pallant, 2011). A VIF value of 10 and tolerance levels below 0.2 are considered critical (Field, 2009). Most of the VIF values are around 1.1 and tolerance levels are all higher than 0.2 and mostly around 0.8. Indicating that multicollinearity is not problematic in this thesis.
The descriptive statistics show that the average firm in the Global Fortune 500 list has 120,220 employees and an age of 61.22 years. When looking at the descriptive values concerning the corporate governance systems it shows that 28.4 per cent of the firms in the sample rely on an Anglo-American governance system, which equals 142 MNCs. There are respectively 62 MNCs (12.4 per cent) relying on the Japanese governance system and 30 (6.0 per cent) on the German corporate governance system.
The level of firms’ internationalization is both measured in scale and scope. Data on the level of foreign sales to total sales has been retrieved for 356 firms. These firms have an average level of internationalization of 45.7 per cent. This implicates that 45.7 per cent of their total sales is outside of their home country. To measure the scope of firms’ internationalization the geographical dispersion of these foreign sales are taken into account. A firm has a global focus when it has at least 20 per cent of total sales in at least three regions. Data about the geographical dispersion of sales is available for 335 firms. Only 26 MNEs are considered to operate globally.
Table 2. Descriptive statistics; means, standard deviation and correlations
Variable Mean Std..Dev. 1 2 3 4 5 6 7 8 9 10 11 12 13
1.#BoD#nationality#diversity#(difnat/totbod) 0.2042 0.144 1 2.#BoD#nationality#diversity#(intmem/totbod) 0.1571 0.205 0.827** 1 3.#Company#age 61.224 51.550 0.106* 0.097* 1 4.#Company#size 11.170 1.147 0.045 0.080 0.061 1 5.#Gearing 142.312 123.210 H0.107 H0.065 0.006 0.107* 1 6.#Primary#sector 0.154 0.361 0.032 0.035 H0.095* H0.249** H0.159** 1 7.#Secondary#sector 0.334 0.476 0.031 H0.005 0.013 0.165** 0.054 H0.309** 1 8.#Level#of#internationalization#(scale) 0.457 0.305 0.428** 0.471** 0.160** 0.183** H0.071 0.014 0.253** 1 9.#Global#focus 0.052 0.222 0.166** 0.148** 0.058 0.075 H0.004 H0.050 0.191** 0.270** 1 10.#German#corporate#governance#system 0.060 0.238 H0.061 H0.027 0.090* 0.067 0.090 H0.038 0.030 0.150** H0.021 1 11.#Japanese#corporate#governance#system 0.124 0.330 H0.206** H0.183** 0.015 H0.091* 0.008 H,0.093* 0.149** H0.155** H0.061 H0.095* 1 12.#AngloHAmerican#corporate#governance#system0.284 0.451 H0.075 H0.144** 0.089* H0.040 H0.044 H0.084 H0.083 H0.189** 0.092* H0.159** H0.237** 1 13.#ROA#average 5.779 6.618 0.192** 0.137** H0.072 0.113* H0.347** 0.263** 0.090 0.139* 0.059 H0.097* H0.184** 0.131** 1 **#p#<#0.01,#*#p#<#0.05#
Hypothesis 1 is tested using a multiple linear regression with the average ROA as dependent variable. Together with the control variables 24.3 per cent of firm performance is explained by nationality diversity in board of directors (difnat/totbod). With an F score of 17.900 and a significance level of 0.000 the regression model as a whole is significant. The relationship between nationality diversity in board of directors and firm performance is positive (B = 6.585, SE = 2.283) and based on the p-value (0.004) it can be concluded that this linear positive relationship is statistically significant. The second operationalization (intmem/totbod) shows consistent results and therefore hypothesis 1 is supported.
A multiple regression model is used to investigate whether the relationship between nationality diversity in board of directors and firm performance is affected by firms’ level of internationalization and the corporate governance system it is relying on. After centering the variables that measure nationality diversity in board of directors, firms’ levels of internationalization, and governance systems, the interaction terms were computed. The control variables, two predictors and the interaction variable were entered into a simultaneous regression model.
The results in Model 3, in Table 3 indicate that higher levels of nationality diversity in board of directors (B = 8.139, SE = 3.030, p = 0.008) are associated with firm performance while the scale of firms’ internationalization (B = -0.413, SE = 1.410, p = 0.778) is not. The interaction between the level of internationalization and nationality diversity in board of directors is not significant (B = -0.413, SE = 0.379, p = 0.277), suggesting that the relationship between nationality diversity in board of directors and firm performance is not affected by the scale of firms’ level of internationalization. These findings are consistent with the results in Model 3 in Table 4. Thereby hypothesis 2 is rejected.
Model 4 in Table 3 shows the findings for hypothesis 3 considering a firm with a global focus. Nationality diversity in board of directors is associated with a positive effect on firm performance (B = 6.512, SE = 2.339, p = 0.005) but there is no significant direct relationship of a firm with a global focus on performance (B = -0.640, SE = 1.1789, p = 0.721). The interaction variable shows no significant relationship either (B = 0.296, SE = 0.324, p = 0.362) suggesting that a firm with a global focus does not affect the relationship between nationality diversity in board of directors and firm performance. However, a possible moderation effect for a firm with a global focus (B = 0.634, SE = 0.275, p = 0.022) appears when the ratio of foreign directors to total board members is used to measure board of directors’ nationality diversity (intmem/totbod).
A hierarchical multiple regression is used to test whether the scope of firms’ level of internationalization actually moderates the relationship between board of directors’ nationality diversity and firm performance. The first step includes the two variables nationality diversity in board of directors (intmem/totbod) and a firm with a global focus. These variables account for a significant amount of variance in firm performance (Adj. R² = 0.016, F = 4.141, p = 0.017). The second step includes the centered interaction variable, which accounts for a significant proportion of the variance in firm performance (R² change = 0.01, F = 3.956, p = 0.047). Examination of the interaction plot in Figure 2 shows that at low levels of nationality diversity in board of directors a firm that has a home region focus performs better than a firm with a global focus, at average levels they perform the same, whereas high levels of nationality diversity in board of directors seems to be more beneficial for firms with a global focus. Therefore, when using the scale of nationality diversity in board of directors, a globally focused firm has a positive effect on the relationship between
nationality diversity in board of directors and firm performance. Thereby supporting hypothesis 3.
Figure 2. Moderating effect global focus on firm performance
!
Models 5, 6 and 7 show the results concerning hypothesis 4 that tested for moderation effects of corporate governance systems. Model 5 displays the outcomes for hypothesis 4a. A higher level of nationality diversity in board of directors (difnat/totbod) (B = 6.032, SE = 2.338, p = 0.010) is associated with higher levels of firm performance. The direct relationship between a German corporate governance system and firm performance is not significant (B = -2.132, SE = 1.481, p = 0.151). Moreover, the effect of the interaction variable on the relationship between nationality diversity in board of directors and firm performance is not significant (B = -0.363, SE = 0.481, p = 0.450) therefore hypothesis 4a is not supported. The results in model 6 indicate that both nationality diversity in board of directors (B = 5.233, SE = 2.346, p = 0.026) and relying on a Japanese governance system (B = -2.828, SE = 1.185, p = 0.018) are associated with firm performance. However, the interaction between these two is not (B= 0.021, SE = 0,411, p = 0.958). Therefore hypothesis 4b is not
0! 1! 2! 3! 4! 5! 6! 7! 8! 9! 10! Low!BoD! nationality! diversity! Average!BoD! nationality! diversity! High!BoD! nationality! diversity! Fi rm %p er fo rm an ce %( R O A %a ve ra ge )% Global!focus! Home!region!focus!
supported since the slope of the linear relationship between nationality diversity in board of directors and firm performance is not affected by firms that rely on a Japanese corporate governance system. Model 7 shows similar findings. Both nationality diversity in board of directors (B = 7.591, SE = 2.273, p = 0.001) and firms that have an Anglo-American governance system as a standard (B = 2.812, SE = 0.719, p = 0.000) are associated with firm performance. The interaction between these two variables is not significant (B = 0.282, SE = 0.355, p = 0.428). Hypothesis 4c that suggested a positive moderating role for Anglo-American governance systems is therefore not supported. The findings in Table 4, using the scale of board of directors’ nationality diversity, provide similar results.
To further enhance the robustness of the findings the multiple regression is repeated using the Blau index to measure the regional diversity in the board of directors. The Blau index is measured using the formula B = 1-Σ(p/k²). The ‘p’ consists of the number of board members from one of the six regions and ‘k’ is the total amount of board members. The Blau index varies between 0 (completely homogeneous team) and 1 (completely heterogeneous team) (Blau, 1977). The robustness check for the multiple regression model using the Blau index to measure regional diversity match the findings of Table 3 and thereby support the relationships that are found.
Regarding the control variables, there is support for a positive effect of company size and MNCs belonging to the primary and secondary industry sector on firm performance. Gearing, as expected, negatively affects firm performance. Interestingly, company age that is found to influence firm performance in other studies does not seem to matter in the context of this study because this variable is not significant.
Table 3. Regression results (BoD nationality diversity (difnat/totbod), level of firms’ internationalization, corporate governance systems, and firm performance) Dependent'variable:'firm'performance'(ROA'average) Model&1 Model&2&or& hypothesis&1 Model&3&or& hypothesis&2 Model&4&or& hypothesis&3 Model&5&or& hypothesis&4a Model&6&or& hypothesis&4b Model&7&or& hypothesis&4c
Constant 85.856†&(3.207) 86.632*&(3.335) 86.570†&(3.777) 86.543†&(3.347) 86.996**&(3.347) 84.953&(3.358) 88.348**&(3.294)
Independent'variables
BoD&nationality&diversity&(difnat/totbod) 6.585**&(2.283) 8.139**&(3.030) 6.512**&(2.316) 6.032**&(2.338) 5.233*&(2.346) 7.577**&(2.272)
Level&of&internationalization&(fs/ts) 80.397&(1.410) Global&focus 80.640&(1.789) German&corporate&governance&system 82.132&(1.481) Japanese&corporate&governance&system 82.826*&(1.185) Anglo8American&corporate&governance&system 2.812***&(0.719) Level&of&internationalization&(fs/ts)&x&BoD&nationality&diversity&(difnat/totbod) 80.413&(0.379) Global&focus&x&BoD&nationality&diversity&(difnat/totbod) 0.296&(0.324) German&system&x&BoD&nationality&diversity&(difnat/totbod) 80.363&(0.481) Japanese&system&x&BoD&nationality&diversity&(difnat/totbod) 0.021&(0.411) Anglo8American&system&x&BoD&nationality&diversity&(difnat/totbod) 0.280&(0.355) Control'variables:'MNE'characteristics
Company&age 80.007&(0.006) 80.009&(0.006) 80.009&(0.007) 80.009&(0.006) 80.008&(0.006) 80.008&(0.006) 80.011†&(0.006)
Company&size 1.154***&(0.283) 1.108***&(0.294) 1.104**&(0.337) 1.102***&(0.295) 1.152***&(0.296) 1.006**&(0.294) 1.163***&(0.288)
Gearing 80.018***&(0.003) 80.017***(0.003) 80.017***&(0.003) 80.017***&(0.003) 80.017***&(0.003) 80.017***&(0.003) 80.016***&(0.003)
Control'variables:'Industry
Primary§or 5.640***&(0.941) 5.504***&(0.977) 5.464***&(1.112) 5.477***&(0.979) 5.538***&(0.977) 5.233***&(0.971) 5.939***&(0.963)
Secondary§or 2.380**&(0.694) 2.296**&(0.719) 2.390**&(0.843) 2.274**&(0.732) 2.311**&(0.719) 2.605***(0.722) 2.532***&(0.711)
Model'fit N 359 318 253 318 318 318 318 R² 0.237 0.257 0.261 0.259 0.262 0.275 0.292 Adj&R² 0.226 0.243 0.236 0.240 0.243 0.257 0.273 F8stat 21.287 17.900 10.749 13.483 13.697 14.671 15.902 P8value 0.000 0.000 0.000 0.000 0.000 0.000 0.000 ***&p&<&0.000,&**&p&<&0.01,&*&p&<&0.05,&†&P&<&0.1&&Values&in&parentheses&are&standard&errors
