Boards of a Feather: Homophily in Foreign Director Appointments Around the World

ABSTRACT We examine how similarity in institutional, legal, and social characteristics between a firm's and its directors’ home countries, that is, country‐pair homophily, affects foreign director appointments. We estimate a gravity model that includes economic and geographic proximity and find that country‐pair homophily is a significant determinant of foreign director appointments to corporate boards. We also find that country‐pair homophily limits the appointments of foreign directors from high‐quality governance countries to firms located in low‐quality governance countries, which may reduce the role of board internationalization in promoting the global convergence of governance practices. We analyze changes in foreign director appointments around the international adoption of IFRS and Norway's gender‐quota rule and find a higher appointment likelihood for directors originating from countries that are institutionally and culturally similar to that of the firm. Our findings point to the critical role that country‐pair homophily plays in matching director to boards with implications for the diffusion of governance practices globally.