Foreign Directors in Russian Public Companies: Determinants of Presence and Impact on Performance

Despite the increased attention in the national scientific literature to corporate governance issues, including those related to boards of directors, relatively little is known about the appointments and role of foreign directors on the boards of Russian companies. In particular, the factors determining the presence of foreign directors on boards have not been fully studied, while the existing results of the influence of foreign directors on the performance of Russian firms remain ambiguous. The purpose of this paper is to obtain a more complete understanding of the place and role of foreigners on the boards of directors of Russian companies. The main hypotheses of the study are the following: the ownership structure indicators as well as the shareholder identity are significant determinants of the presence of foreign directors on boards, while the foreign directors themselves have a positive effect on the companies' corporate performance. Using panel data on 292 Russian public companies and methods of descriptive, statistical and econometric analysis, a gradual decrease in the share of foreigners on boards of directors was revealed during this period. A significant positive effect of the share of foreign ownership on the share of foreign directors on boards, a negative effect of government participation and a nonlinear effect of the share of the largest stakeholder on the probability of attracting foreigners to the boards of directors were also found. However, the evidence of an inverse U-shaped relationship requires taking into account the shareholder identity, specifically, the share of foreign ownership. Finally, a positive effect of foreign directors on market indicators of corporate performance was found using the advanced econometric analysis methods, including those aimed at solving the endogeneity problem. The academic significance of the study stems from filling the gaps in the existing knowledge about foreign directors using detailed data on the population study of non-financial companies traded on the Moscow Exchange. The practical value is due to the possibility of using the results by regulators, large shareholders and the stock market participants especially in the context of the expected easing or lifting of sanctions against Russia.