Nonexecutive director influence on informational asymmetries in Caribbean offshore financial centers

Bruce Hearn, Alexander Mohr, Jaskaran Kaur, Muhammad Khawar

Publication: Scientific journalJournal articlepeer-review

Abstract

Question/issue
This is a study of the relationship between nonexecutive director personal ownership and firm's bid ask spreads in listed firms from across the Caribbean offshore securities exchanges.

Research findings/insights
We report that bid ask spreads increase with nonexecutive ownership. However, this result is reduced (negatively moderated) in the context of higher formal institutional quality and also if the territory has a fixed exchange rate regime but exacerbated (positively moderated) if the firm is located within an offshore jurisdiction.

Theoretical/academic implications
The results regarding the influence of nonexecutive director ownership on firm liquidity-based transaction costs, namely, market estimates of bid ask spreads, are interpreted in terms of the contingency of this relationship on the wider institutional context. The effectiveness of nonexecutive directors is highly contingent upon the specific institutional context. Higher formal institutional quality and the presence of a strong macroeconomic tie between territory and Organisation for Economic Co-operation and Development (OECD) country lead to a reduction in these costs, while offshore financial centers lead to their increase. We argue that this highlights a shortcoming of agency theory's more limited view of institutions.

Practitioner/policy implications
The results support regulator's focus on board of director composition and in particular nonexecutive remuneration in the form of ownership. Given the increasing dominance of Anglo-American governance, firms worldwide are increasing the proportions of nonexecutive directors on their boards. However, their role is acutely context specific which is reflected in the relationship between their personal ownership and the liquidity-borne transaction costs of the firm as a whole.
Original languageEnglish
Pages (from-to)349-369
JournalCorporate Governance: An International Review
Volume31
Issue number2
Early online dateApr 2022
DOIs
Publication statusPublished - Mar 2023

Keywords

  • board-level governance outcomes
  • board reputation/legitimacy
  • director independence
  • governance environments
  • multi-country

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