Faculty & Research

This paper explores the real effect of board directors who develop their human capital through foreign education and/or working experience in a large emerging market like China. To establish causality, we exploit that at different times, Chinese provinces introduced policies to attract highly talented emigrants studying or working abroad. These policies led to an exogenous increase in the supply of individuals with foreign experience in the local director market and ultimately increased the likelihood that firms in these provinces had directors with foreign experience in comparison to firms with 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, and to generate sales and to raise funds internationally. These results indicate that the transfer of knowledge to emerging markets may occur not only through foreign investment, but also through labor flows and, in particular, return migration.