Incorporation in Offshore Financial Centers: Naughty or Nice?

55 Pages Posted: 21 Nov 2013 Last revised: 12 Nov 2020

See all articles by Warren Bailey

Warren Bailey

Cornell University; Fudan University - Fanhai International School of Finance and China Institute of Economics and Finance

Edith X. Liu

Board of Governors of the Federal Reserve System

Date Written: June 2, 2020

Abstract

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

Bailey, Warren B. and Liu, Edith X., Incorporation in Offshore Financial Centers: Naughty or Nice? (June 2, 2020). Available at SSRN: https://ssrn.com/abstract=2357074 or http://dx.doi.org/10.2139/ssrn.2357074

Warren B. Bailey

Cornell University ( email )

S. C. Johnson Graduate School of Management
387 Sage Hall
Ithaca, NY 14853-6201
United States
607-255-4627 (Phone)
607-254-4590 (Fax)

HOME PAGE: http://courses.cit.cornell.edu/wbb1/

Fudan University - Fanhai International School of Finance and China Institute of Economics and Finance ( email )

China

Edith X. Liu (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-3913 (Phone)

HOME PAGE: http://https://www.federalreserve.gov/econresdata/edith-x-liu.htm

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