This thesis explores board nationality diversity, focusing on foreign non-executive directors and their relationship with CEO compensation, firm performance, and crash risk for a sample of UK firms from 2002 to 2015. First, we examine the changes in board composition over the years and find an increase in foreign non-executive directors and in the number of foreign CEOs managing UK firms. We discover boards have become smaller, more independent and CEOs occupying dual roles have considerably reduced. Next, we analyse the relationship between foreign non executive directors and CEO compensation and note that firms with more foreign non executive directors pay less to their CEO. Moreover, European and other international non-executive directors are particularly effective at limiting CEO compensation. Then we examine the impact of foreign non-executive directors on firm performance and show that foreign non-executive directors positively impact firm value. CEO and executive directors’ equity-like compensation and share ownership also positively influences firm performance. Our findings suggest that European and American non executive directors are more effective in improving corporate performance. Finally, we analyse the relationship between foreign non-executive directors, CEO compensation and crash risk. Foreign non-executive directors monitor the board and mitigate the impact of CEO equity-linked pay on stock price crash risk. Our analysis reveals that leverage increases crash risk, but that foreign non-executive directors, of high leverage firms lower crash risk. Overall, foreign non-executive directors serve as effective monitors and advisors to moderate executive pay, improve firm performance and reduce stock price crash risk.

Earnings management is widely implemented by managers, which may be the result of weak monitoring. This study is based on 140 companies to capture the effect of shareholder activism (proxied by shareholder proposals) on earnings management. This study adds to the literature by focusing on how the presence of foreign directors on the board moderates this relationship. This study investigatesthe influence of foreign directors by taking the proportion of foreign directors, as well as by measuring the regulation distance of their home countries to the U. S. The result from the empirical analyses implies that shareholder activism can lead to a lower level of earnings management due to improved monitoring. A higher proportion of foreign directors and a closer regulation distance of their home countries to the U. S do not help shareholder activists to reduce earnings management. Decreasing monitoring effectiveness leads to a higher level of earnings management.