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We study the impact of directors with foreign experience on firm performance in emerging markets. Using a unique data set from China, we exploit the introduction of policies to attract talented emigrants and increase the supply of individuals with foreign experience in different provinces at different times. We document that performance increases after firms hire directors with foreign experience and identify the channels through which the emigration of talent may lead to a brain gain. Our findings provide evidence on how directors transmit knowledge about management practices and corporate governance to firms in emerging markets.THE BOARD OF DIRECTORS is expected to monitor and provide advice to management (Fama and Jensen (1983)). The extent to which boards fulfill these duties is widely debated and may depend largely on the characteristics and skills of the directors (Adams, Hermalin, and Weisbach (2010)). Board composition may be particularly important in emerging markets, where firm performance * Mariassunta Giannetti is from the Stockholm School of Economics; the Centre for Economic and Policy Research; and the European Corporate Governance Institute. Guanmin Liao is from the Central University of Finance and Economics School of Accountancy, and Xiaoyun Yu is from the Indiana University Kelley School of Business and the China Academy for Financial Research. We thank Michael Roberts (the Editor), two anonymous referees, Ken Ahern, Laurent Bach, Walid Busaba, Chun Chang, Jess Cornaggia, Yaniv Grinstein, Juanna Joensen, Daniel Metzger, Zacharias Sautner, Wei-Ling Song, Frank Yu, and seminar participants at the Western Finance Association annual meeting (Las Vegas), the European Finance Association annual meeting (Copenhagen), the CFEA Conference at the University of Southern California, Marshall School of Business, the Asian Finance Association annual meeting (Nanchang), the Financial Intermediation Research Society Conference (Dubrovnik), EDHEC, ESSEC, Fudan University, Indiana University, Louisiana State University, the Shanghai Advanced Institute of Finance at Shanghai Jiao Tong University, the Vienna Graduate School of Finance, the Stockholm School of Economics (SITE), the University of St. Gallen, the University of Nottingham, and the University of Western Ontario for helpful comments. M. Giannetti acknowledges financial support from the Jan Wallander and Tom Hedelius Foundation and the Bank of Sweden Tercentenary Foundation. G. Liao acknowledges financial support from the National Natural Science Foundation of China, Grant Nos. 70902001 and 71272233. This paper was started when G. Liao was visiting Indiana University, which we thank for the generous hospitality. X. Yu acknowledges financial support from CIBER at Indiana University; the Arthur M. Weimer Faculty Fellowship; and the National Natural Science Foundation of China, Grant No. 71202045. DOI: 10.1111/jofi.12198 1630The Journal of Finance R is known to be hampered by weak corporate governance and poor management practices (Syverson (2...

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This paper examines how firm characteristics, the legal system and financial development affect corporate finance decisions using a novel and unexplored data set containing balance sheet information for listed and unlisted companies. Contrary to the previous literature, by using data on unlisted companies of small dimension, the paper shows that institutions play an important role in determining the extent of agency problems in corporate finance decisions. In particular, it emerges that in countries with good accounting standards and above-average creditor protection, it is easier for firms investing in intangible assets to obtain loans. Therefore, institutions that are capable of effectively protecting lenders are good substitutes for collateral. The protection of creditor rights is also important for guaranteeing access to long-term debt for firms operating in sectors with highly volatile returns. In contrast, if the law does not guarantee creditor rights sufficiently, lenders prefer to issue short-term debt because they can use the threat not to renew the loan to limit entrepreneurs' opportunistic behavior. In this case, inefficiencies due to the excessive liquidation of projects in temporary difficulty may arise. Ceteris paribus, firms are more leveraged in countries where the stock market is less developed. Moreover, unlisted firms appear systematically more indebted even after controlling for firm characteristics, such as profitability, size and the ability to provide collateral. Finally, institutions, which favor creditor rights and ensure stricter enforcement, are associated with higher leverage, but also with greater availability of long-term debt.

W e investigate whether cultural differences between professional decision makers affect financial contracts in a large data set of international syndicated bank loans. We find that more culturally distant lead banks offer borrowers smaller loans at a higher interest rate and are more likely to require third-party guarantees. These effects do not disappear following repeated interaction between borrower and lender and are economically sizable: A one-standard-deviation increase in cultural distance, approximately the distance between Canada and the United States or between Japan and South Korea, is associated with a 6.5 basis point higher loan spread; the loan spread increases by about 23 basis points if the bank-firm match involves culturally more distant parties, for example, from Japan and the United States. We also find that cultural differences not only affect the relation between borrower and lender, but also hamper risk sharing between participant banks and culturally distant lead banks.