Board diversity and outward FDI: evidence from Europe

Employing firm-level panel data from 2011 to 2015, we investigate the relationship between board diversity—in terms of gender and nationality—and outward foreign direct investment (OFDI) in Europe. Previous studies suggest that best-performing firms self-select into OFDI and that board diversity affects firm performance and strategic decisions. Controlling for endogeneity using instrumental variables and control functions, we find that firms with more diverse boards are less likely to open foreign subsidiaries. Furthermore, we explore the role of performance as modifier and mediator of the effect of board diversity on OFDI. Relying on suitable interaction terms, we show that the effect of board diversity on OFDI is stronger for more productive firms. We then decompose the effect of board diversity on OFDI into a negative direct effect and a positive performance-mediated effect, with the former outweighing the latter. Our findings are consistent with tough management monitoring by more diverse boards.