Peer Effects of Interlocking Boards on Outward Foreign Direct Investment Decisions

Abstract

Interlocking directors, those serving simultaneously on two or more corporate boards, facilitate exchanges of expertise and knowledge between companies, helping to reduce information gaps related to internationalization. This study analyzed investment data of 4,403 listed Chinese companies across 80 countries from 2000 to 2021, and identified a significant peer effect: the outward foreign direct investment (OFDI) experience of interlocking board directors strongly influenced companies' decisions to engage in OFDI in the same country. Key mechanisms affecting OFDI decisions include the focal company's cost of debt and the scope of available information. Heterogeneity analysis shows that peer effects were more pronounced in non-state-owned enterprises, companies with lower financing constraints, and those in more competitive industries. These effects were amplified in host countries with higher levels of government integrity and more favorable business environments. This research identifies the key drivers of OFDI and highlights the influential role of interlocking directors in shaping investment strategies, offering theoretical insights for emerging market companies seeking to leverage such networks.