FOREIGN DIRECTORS AND FIRM FINANCIAL PERFORMANCE: EVIDENCE FROM THE TANZANIAN LISTED COMPANIES

Abstract

This study investigates the impact of foreign directors on the financial performance of the Tanzanian listed firms. The study applies balanced panel data Ordinary Least Square (OLS) regression analysis on 120 firm-years observations obtained from the firms’ audited annual reports and from the OSIRIS database from 2006 to 2018. The study findings support agency and resource dependence theories that foreign directors have a positive relationship with the firms’ financial performance. The findings indicate further that foreign directors enhance firm performance by providing the firm’s Board of Directors with effective and efficient overseeing and advice to the CEO and the top management. This study contributes to the understanding of the impact of foreign directors on firm performance and provides researched based evidence to Tanzanian policy makers on the importance of foreign members on the firm’s Board of Directors. Unlike the previous corporate governance studies, which focused on developed countries, this study examines the effects of foreign members on the Boards of Directors of listed firms in Tanzania, a developing country where very few corporate governance studies have been conducted. The study recommends policy makers in Tanzania to use the results of this original study while preparing or reviewing Corporate Governance Regulations.