Incorporation in Offshore Financial Centers: Naughty or Nice?
55 Pages Posted: 21 Nov 2013 Last revised: 12 Nov 2020
Date Written: June 2, 2020
We illustrate the importance of law and regulation using firms incorporated in offshore financial centers (OFCs) that promise an efficient institutional environment but can also enable expropriation of minority shareholders. We find SEC action is more likely for these firms, which is consistent with lower investor valuation and our model’s intuition. Our identification strategy using a Cayman Islands corporate law change, a related court decision, and increases in government scrutiny confirms that easier takeover provisions benefit minority shareholders. Thus, whether these unusual jurisdictions are beneficial or destructive depends on law, regulation, and firm, home country, and listing country characteristics.
Keywords: Offshore financial center, law and finance, corporate governance, regulatory arbitrage
JEL Classification: F21, F38, G15, G34
Suggested Citation: Suggested Citation