Do Foreign Directors affect Corporate Performance? Evidence from Tanzanian listed Firms

Abstract

This paper examines the relationship between foreign directors and corporate performance using a sample of 21 listed companies in Tanzania. The findings show that the existence of foreign director on the board is positively associated with firm performance. Specifically, the findings revealed that both the number of foreign directors and the percentage of foreign directors on the board improve corporate performance as measured by return on assets (ROA), return on sales (ROS) and earnings per share (EPS). Interestingly, this result remained consistently the same, despite alternating some important corporate governance variables in econometric models estimated. This finding is consistent with the resource dependency theory and informs that these foreign directors bring expertise, knowledge and new networks which are collectively beneficial to the firm. In addition, this paper documented some evidence that that female director’s affects firm performance negatively.

Keywords: corporate governance, resource dependency theory, upper echelon theory, foreign directors, firm performance