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The Impact of Founders on Information Asymmetry vis-à-vis Outside Investors: Evidence from Caribbean Offshore Tax Havens

Author

Listed:
  • Hearn, Bruce

    (University of Bradford, Bradford, United Kingdom)

  • Oxelheim, Lars

    (Research Institute of Industrial Economics (IFN))

  • Randøy, Trond

    (Copenhagen Business School, Copenhagen, Denmark and)

Abstract

Ceding ownership to outside investors provides a control dilemma for founders. In less developed capital markets with weaker formal institutions, we argue that retained founder director ownership can lower the transaction costs of external capital. Our argument rests on incomplete contracting and institutional theory, particularly highlighting the elevated status of the founding entrepreneur. Based on a longitudinal study of 179 listed Caribbean firms, we find that retained founder ownership reduces information asymmetry vis-à-vis outside minority investors. The reduced information asymmetry is even stronger for firms with a related party/subsidiary within a tax haven, and for firms with strong shareholder rights.

Suggested Citation

  • Hearn, Bruce & Oxelheim, Lars & Randøy, Trond, 2021. "The Impact of Founders on Information Asymmetry vis-à-vis Outside Investors: Evidence from Caribbean Offshore Tax Havens," Working Paper Series 1419, Research Institute of Industrial Economics.
    • Handle: RePEc:hhs:iuiwop:1419
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    More about this item

    Keywords

    Founders; Ownership; Bid Ask Spreads; Institutions; Caribbean;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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