Working Paper: CEPR ID: DP9190
Authors: Mariassunta Giannetti; Guanmin Liao; Xiaoyun Yu
Abstract: We study the impact of directors with foreign experience on firms in emerging markets. To establish causality, we use a unique dataset from China and exploit that at different times, Chinese provinces introduced policies to attract highly talented emigrants. These policies led to an exogenous increase in the supply of Chinese individuals with foreign experience in the local labor market and ultimately increased the likelihood that firms in these provinces had directors with foreign experience in comparison to firms with a similarly high demand for these skills elsewhere. We document that hiring directors with foreign experience results in higher firm valuation, productivity, and profitability. Furthermore, corporate governance improves and firms are more likely to make international acquisitions, to export, and to raise funds internationally. These results indicate that the transfer of knowledge to emerging markets occurs not only through foreign investment, but also through labor flows and, in particular, return migration.
Keywords: corporate boards; corporate governance; firm performance; firm productivity; human capital
JEL Codes: D22; D80; F21; F22; G30; J24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Hiring directors with foreign experience (F29) | Firm performance indicators (valuation, productivity, profitability) (L25) |
| Hiring directors with foreign experience (F29) | Firm valuation (G32) |
| Hiring directors with foreign experience (F29) | Total factor productivity (O49) |
| Hiring directors with foreign experience (F29) | Profitability (L21) |
| Hiring directors with foreign experience (F29) | Corporate governance (G38) |
| Hiring directors with foreign experience (F29) | Decrease in earnings management (G38) |
| Hiring directors with foreign experience (F29) | Increased CEO turnover following poor performance (G34) |
| Hiring directors with foreign experience (F29) | Engagement in international mergers and acquisitions (F23) |
| Hiring directors with foreign experience (F29) | Access to foreign capital (F21) |