Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1419: The Impact of Founders on Information Asymmetry vis-à-vis Outside Investors: Evidence from Caribbean Offshore Tax Havens

Bruce Hearn , Lars Oxelheim () and Trond Randøy
Additional contact information
Bruce Hearn: University of Bradford, Bradford, United Kingdom
Lars Oxelheim: Research Institute of Industrial Economics (IFN), Postal: Stockholm, Sweden, and School of Business and Law, University of Agder, Kristiansand, Norway
Trond Randøy: Copenhagen Business School, Copenhagen, Denmark and, Postal: School of Business and Law, University of Agder, Kristiansand, Norway

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.

Keywords: Founders; Ownership; Bid Ask Spreads; Institutions; Caribbean

JEL-codes: D53; F23; G12; G15; G32; G34

46 pages, November 23, 2021

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