Abstract

We examined the roles of institutional investors, boards of directors, and technological opportunity in relation to international diversification. Our research contributes to both agency and foreign direct investment theories. In data on 197 large U.S. firms, we found significant relationships between institutional ownership and international diversification. International diversification was favored by (1) professional invest-ment funds along with outside board members and (2) pension funds along with inside board members. Also, pension funds ’ long-term orientation facilitated international-ization in industries with high technological opportunities. The results suggest that different institutional owners have different stakes in firms ’ international strategies, and the effects of boards of directors and technological opportunity accentuate these differences. Nearly 60 percent of U.S. corporate equity is owned by institutional investors, such as profes-sional investment and pension funds (Useem, 1996). Corporate governance research suggests that these institutional shareholders are playing an in-creasingly active role in firm strategies (David, Hitt,