Inside the board room: the influence of nationality and cultural diversity on cross-border merger and acquisition outcomes

This study is among the first to systematically examine how increasing nationality and cultural diversity on the boards of large U.S. corporations influence their cross-border merger and acquisition (CBMA) decisions. We find that firms with foreign representation on boards more frequently engage in less profitable CBMAs. We also find that the negative role of foreign directors in the strategic decision-making process is due at least in part to the cultural differences between foreign and U.S. directors, especially in transactions with a high degree of uncertainty. Finally, we show that the adverse effect of foreign directors prevails in the post-SOX (Sarbanes–Oxley Act) period and reduces with longer foreign director tenure and more inclusive board culture. Overall, our findings suggest the presence of foreign directors could negatively affect CBMA decision-making effectiveness, consistent with the argument that national cultural diversity hinders communication and collaboration within boards.