[EGC] Board diversity and FDI in Europe. Which direction of causality?

The last ten years have witnessed important changes in board composition across European countries. Pioneered by Norway in 2007 and rapidly adopted by many other European countries, legislation introducing gender quotas in the boardrooms has sparked a lively debate on its long-term effects. A second, but not less important, change in board composition stems from the heightened cross-border competition for managerial talent and executives Europe experienced alongside economic and financial integration. Consistent with it, over the last decade, the percentage of foreigners on boards has increased substantially in many countries, including Germany, Italy and Spain.

In 2014, the European Commission imparted further impulse to board diversity by requiring large listed companies to disclose information about diversity policy in the boardroom (Directive 2014/95/EU). The European Commission promotes board diversity on the ground that it leads to better decisions by fostering discussion and monitoring, despite any lengthening of the decision-making process itself (2011 Green Paper Corporate governance in financial institutions and remuneration policies).

In the light of above, the question of whether and how diversity affects board decision-making and ultimately firms’ performance appears to be of particular relevance for European companies and policymakers. We propose to investigate the relationship between board diversity and internationalization decisions of European enterprises, with a special focus on Foreign Direct Investment (FDI). Our empirical analysis will rely on firm-level panel data from 28 countries in the European Union. Our aim is to disentangle the complex nexus between board composition, internationalization and firm performance, as board composition and internationalization are considered in the literature as both a determinant and a consequence of firm’s performance. Our focus on FDI is motivated by the growing number of European companies involved in inward as well as outward FDI operations and by the European Commission’s policy initiatives launched in 2017 and aimed at reforming its investment policy in response to the emergence of new international challenges.