Incorporation in Offshore Financial Centers: Naughty or Nice?

70 Pages Posted: 21 Nov 2013 Last revised: 9 Apr 2019

See all articles by Warren Bailey

Warren Bailey

Cornell University; Fudan University - Fanhai International School of Finance (FISF)

Edith X. Liu

Federal Reserve Board of Governors

Date Written: April 2, 2019

Abstract

We study the associations between law and finance in a novel setting using listed firms incorporated in offshore financial centers (OFCs). OFC incorporation can offer an efficient legal and regulatory environment or it can facilitate expropriation by managers and controlling shareholders. Our empirical evidence shows that Tobin’s q, value of cash, and institutional holdings are typically lower for OFC incorporated firms, but, as suggested by our model, consequences vary widely with the firm’s individual and home country characteristics. These findings are upheld by our identification strategy centered on legal, regulatory, and enforcement events in home, listing, and OFC countries.

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? (April 2, 2019). Available at SSRN: https://ssrn.com/abstract=2357074 or http://dx.doi.org/10.2139/ssrn.2357074

Warren B. Bailey

Cornell University ( email )

Samuel CurtisJohnson 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 (FISF) ( email )

China

Edith X. Liu (Contact Author)

Federal Reserve Board of Governors ( 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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