“Familiarity biases influence corporate board composition” – Professor Bart Frijns’ guest lecture at Corvinus

Bart Frijns has a diverse portfolio as a researcher. He is the editor-in-chief or the Journal of Futures Markets, and editorial board member of Applied Finance Letters and the Global Finance Journal. In his papers, he has covered topics from corporate finance to financial econometrics, examining several fields of finance. Recently, he has been working on three main topics: market microstructure, financial derivatives, and the connections between finance and culture.  

The latter was the topic of Bart’s lecture at Corvinus University of Budapest. The Research Seminar was organized by the Institute of Finance and the Institute of Economics. The researcher was invited by associate professor Zsuzsa Huszár whom he met at several conferences in the past couple of years. “The first time we met, we were at a conference in Barcelona presenting in the same session and doing research about similar topics. We had great conversations” – Bart told us. During his visit, he got to know researchers and PhD students at the institute and got feedback on his latest paper investigating foreign ownership and board cultural diversity. 

Connections between culture and finance 

“Culture is a topic that I accidentally became interested in. A colleague of mine was working in international business where people always talk about culture. I was really surprised that there is almost no research in finance on culture” – he told us about how it all started back in 2006. With some colleagues, he started to investigate whether financial decisions are influenced by culture. They wanted to see how fund managers allocate money internationally. They were very surprised by the results of the research. “We corrected for many other factors besides culture, like language similarity or common borders, but it turned out that culture is the main driver of this process” – he explained. For example, many investors from New Zealand choose to invest in Australia, a very similar market to their own. “From a financial perspective, this makes no sense. If you are investing in a market that is very similar to yours, you are not mitigating a lot of risk”. This is how it turned out that diversification and other financial aspects are not necessarily top of mind considerations for investors.  

After discovering the important role of culture in financial decision making, Bart started to explore the connections between culture and finance further. After many years of research, he now works on a project that looks at whether foreign ownership plays a role in the cultural diversity of corporate boards. With his co-authors, Oussama El Moujahid (Utrecht University), S. Abraham Ravid (Yeshiva University), Naciye Sekerci (KU Leuven & KWC Lund University), Bart found that a lot of other forms of diversity, like gender, age, and ethnicity have already been widely covered but cultural diversity is often overlooked. However, it is an important aspect that may influence decision making in corporate boards, or even increase firm value. Therefore, the team started to explore this topic on a sample of Swedish companies by using hand-collected data on firm ownership.  

Based on 13,655 directors’ nationalities, the research found that there is a positive relationship between foreign ownership and cultural diversity. “The foreign owners mostly promote cultural diversity and that’s beyond the mechanical effects of them being a foreigner” – Bart explained in his lecture. These findings suggest homophily, the tendency to associate with similar others that is a fundamental pattern underlying human relations. “The foreign owners seem to promote cultural diversity only in the interest of feeling connected to other like-minded people” – Bart said. Additional analyses showed that the positive relationship between foreign ownership and board cultural diversity is more pronounced in certain types of ownership structures (family firms, dual-class share firms, and concentrated ownership).  The authors also investigated the differences between countries of origin and the effects of board cultural diversity on firm value creation. It turned out that diversity does not lead to higher firm value.  

“This research shows that irrational aspects influence board composition. We have to inform people about this” – Bart concluded in his presentation. 

Managing a Q1 journal and a faculty  

The diversity of his research helps Bart is his work as editorial board member of Applied Finance Letters, the Global Finance Journal, and the editor-in-chief of the Q1 academic journal called Journal of Futures Markets. It is a journal with a very specific focus, publishing high quality papers on derivative products, especially futures and option contracts. The journal has around 500 submissions a year from which 70-80 papers get published. Every decision is made by Bart which means that he first decides on whether the given paper fits into the scope of the journal, then he considers sending it out for review, and selects the reviewers. “The most important part of being an editor is to decide on who should be the reviewers of the papers. That partly determines the quality of the journal” – the professor told us. He has to make sure that the papers that are accepted include quality research and later get read and cited by other scholars.  

During this process, he experiences the challenge of having to rely on different opinions. “I don’t have expertise in all of the areas that the papers include, for example some are very mathematical. I assign two reviewers and get different evaluations. One of them says it is a good paper, while the other says it is not. Then I have to figure out a way to decide on this” – he explained. Of course, he faces an easier situation if the reviewers provide tangible information that he can base his decision on. In the end, his most important aim as an editor is to increase the relevance of the journal.  

Besides being editor, Bart is also the dean of the Faculty of Management Sciences. “It is a trend in the Netherlands to fulfil many roles. As an academic, you have to be like an allrounder: a manager, a researcher, and a teacher at the same time”. The Dutch universities also require science communicational activities. “It is very important to talk to media about your results so that the general public can understand the societal benefits of your work” – Bart explained. To consider the social impact of a research project, is part of his versatile work.  

EXTRA TIPS FOR YOUNG ACADEMICS: 

We have also asked Bart what he would recommend for PhD students who want to publish a in a high-quality journal. He told us that they should pay attention to the introduction of their papers. “A paper gets accepted based on the idea that you propose. A good idea with a poor execution needs rewriting but a poor idea with a good execution will get rejected”. He recommends considering the purpose of the work and testing the concept in seminars and conferences before submitting the paper to a journal.    

Written by Tünde Taxner