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30 March 2023

Board Diversity and Outward FDI Evidence from Europe

Fernando Gutierez

Numerous studies have investigated the correlation between the increase of women directors in European companies and those companies’ economic and financial performance, but less attention has been directed to the effects of board diversity on firm strategic decision-making.

Researchers from the Università degli Studi di Milano-Bicocca and the Università degli Studi di Verona conducted a joint study – using data extracted from the award-winning Orbis platform – to investigate if board diversity affects firms’ internationalization strategies and outward FDI.

The study authors extracted 1,283 listed industrial companies headquartered in 21 European countries from Orbis. The companies belong to 15 NACE 1-digit industries and were continuously operating from 2011 to 2015. Variables for each firm include:

  • Ownership, including the number and location of subsidiaries abroad and the number and country of origin of foreign shareholders
  • The gender, nationality, and professional network of each board member
  • The corporate regime, whether unitary or dual
  • Balance sheet data, including tangible fixed assets, value added, employees, and costs of raw materials


Key findings

The report found that board diversity, in terms of gender and nationality, has both a positive and a negative effect on the decision to invest abroad – with the latter outweighing the former.

Board diversity positively affects firm performance, and better performing firms are more likely to open foreign subsidiaries. Since serving foreign markets entails fixed costs, only the most productive firms, which command a large market share, can successfully undertake outward FDI.

However, the study also found that keeping performance constant, firms with a higher number of female and foreign directors are less likely to engage in outward FDI. The study argues that this is because more diverse boards monitor managerial activities in a rigorous and more informed way.

Find out more about the report’s findings

Fernando Gutierez, Director - Industry Practice Lead, Moody’s Analytics

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