We find that:
- When individuals with foreign experience join the board of a company, the firm’s valuation improves;
- Its total factor productivity increases; and
We also show that these improvements in performance are accompanied by changes in corporate policies that are generally set by the board:
- In the subsequent years, the firm’s profitability increases.
- Firms’ propensity to manage earnings decreases and CEO turnover following low profits increases, indicating that corporate governance improves
This suggests that these firms are able to access a broader range of investment opportunities. Similarly, firms with board members with foreign experience are able to access more sources of external financing, as they are more likely to engage a foreign investor when raising capital through private placements than other firms without directors with foreign experience.
- Among the firms that make mergers and acquisitions, the ones with board members with foreign experience are more likely to make an international merger or acquisition.
Third, firms that hire directors with foreign experience start exporting more.
Putting a return migrant instead of a local on the company board is better for the business. I conducted return migration focus groups for Global Cleveland. Many participants expressed frustration with the lack of opportunities. The networks of power were parochial. Locals only. Too much social capital was (still is) killing Cleveland.
Return migrants are social capital rich, outside of their hometown. These networks could serve as a catalyst for entrepreneurship and economic development in Cleveland if the community would do a better job of recognizing the value of this talent pool. A good place to start is stopping with the population obsession. People develop, not places.