Gender Diversity in Corporate Leadership, Foreign Direct Investment, and Gender Discrimination in Host Countries

Gender Diversity in Corporate Leadership, Foreign Direct Investment, and Gender Discrimination in Host Countries

Kerim Can Kavakli (Bocconi University) 

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ABSTRACT:

In recent decades, foreign direct investment (FDI) has emerged as a critical driver of economic growth and development worldwide. Developing countries’ increasing dependence on foreign capital could compel them to improve their human rights records, but only if foreign investors are responsive to human rights issues. Unfortunately, foreign investors show great variation in their sensitivity to human rights conditions in destination countries and we have a limited understanding of the factors contributing to this variation. Previous research on the relationship between FDI and human rights has primarily used aggregate FDI data at the country level, thus overlooking firm-level factors that may explain their behavior. This paper addresses this gap and argues that the demographic attributes of high-level executives can determine if a firm will invest in a country with a poor human rights record. Specifically, we hypothesize that the gender composition of the board of directors affects a firm’s likelihood of investing in countries where gender discrimination is prevalent. We test this theory using both observational and experimental data. First, we analyze firm-level data from a comprehensive sample of Italian firms and show that companies led by more female directors are significantly less likely to invest in countries with higher levels of gender discrimination. Furthermore, we use the mandatory board gender quota introduced in 2011 to strengthen the causal identification of our observational analysis. Next, we investigate the mechanisms driving this relationship through conjoint experiments conducted on college and MBA students at Bocconi University. Participants, assuming the role of CEOs, are asked to choose between hypothetical investment locations characterized by varying levels of gender equality. Results show that female participants are less likely to invest in locations with greater gender inequality, driven primarily by their normative objections rather than career-related concerns. In summary, our research uses a multimethod approach to understand the relationship between executive demographics, firm behavior, and human rights considerations in the context of foreign investment decisions. It offers valuable insights for policymakers and activists seeking to advance human rights protections. Additionally, it provides a framework that can be used to study how other types of executive demographics, such as race, can impact a firm’s sensitivity to different types of human rights violations across potential investment locations.

BIO:

Kerim Can Kavakli is an assistant professor in the SPS department at Bocconi University. He has a PhD in political science from the University of Rochester. His main areas of research are international political economy (economic sanctions, foreign aid, international trade, foreign direct investment) and public health (maternal and child mortality). He has published articles in PNAS, Journal of Politics, International Organization and other journals.