Bruce Hearn

Research question/issue: This is a study of the relationship between business angel retained ownership in investee firms across the Caribbean region and their informational asymmetry costs captured in bid‐ask spreads.Research findings/insights: We find business angel ownership to be associated with a reduction in transaction costs or bid‐ask spreads. However, this is reversed leading to increasing transaction costs following moderation by whether the investee firm has a subsidiary located within an offshore jurisdiction and separately if the investee firm adopts higher levels of Anglo‐American shareholder value corporate governance.Theoretical/academic implications: We undertake a novel application of incomplete contracting theory in theorizing the influence of ownership of business angels on the transaction costs of their investee firms. We extend and contribute to theory development through consideration of the presence of investee firm's subsidiary located in offshore financial centers within the firm's corporate network and the degree to which it adopts Anglo‐American shareholder value corporate governance. In the former, we argue business angels are more prone to collaborate with firm insiders to the detriment of outside minority investors given the enhanced opacity and shift in incentives. In the latter, we argue the incongruity between business angels, insiders, and outside minority expectations regarding the adoption of shareholder value governance also leads to elevated transaction costs.Practitioner/policy implications: Business angel finance is widely lauded as a potential source of development capital within regional and developing economies with the potential to rejuvenate otherwise moribund entrepreneurial ecosystems and business sectors. Our study yields important findings relevant for practitioners in formulating development policy nurturing the development of indigenous economies through enhanced business angel participation. It also considers the moderating influence of firm's adoption of Anglo‐American shareholder value corporate governance and whether the firm has a related party located in an offshore financial center, something of profound importance in regions comprising offshore financial centers.

Research Question/Issue: This is a study of the relationship between business group ownership and constituent firms' adoption of Anglo‐American shareholder value governance in African firms at the undertaking of an initial public offering (IPO).Research Findings/Insights: We find business group ownership to be associated with lower Anglo‐American corporate governance adoption by constituent firms. However, this association is reversed in the institutional context of higher tribalism, while correspondingly being exacerbated in the context of lower tribalism.Theoretical/Academic Implications: We theorize that the influence of business group ownership on firms' adoption of Anglo‐American corporate governance is better understood when considering the institutional context. We highlight how informal cultural institutions are heterogeneous and thus shape the indigenous political economy and impact business groups. Specifically, we argue institutional contexts with higher tribalism are associated with more in‐group favoritism and nepotism. This association makes it critical for business group constituent firms to escape the constraints of the political economy of tribalism when attracting outside funding, leading to a higher inclination to adopt Anglo‐American governance. Contrastingly, in lower tribalism contexts, there is more universal trust across societies and an increased availability of domestic funding.Practitioner/Policy Implications: Given the proliferation of business group ownership within economies worldwide, the study provides a useful framework with which to gauge the influence of business group ownership on a constituent firm's adoption of Anglo‐American governance best practice. In particular, the study emphasizes that the interdependence of formal institutional architecture and tribalism—both fundamentally associated with the demographic shape and with the incentive structures embedded within the underlying national political economy—calls for careful considerations when making national corporate governance recommendations.

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.

This paper undertakes a comparison between five multifactor variants of the capital asset pricing model, where this is augmented by size, book to market value, momentum, liquidity and a new investor protection metric based on the product of institutional quality in a country and the proportion of free float shares, which captures the impact of controlling block holders. Using monthly returns of 909 blue chip firms from 16 Middle East & North African equity markets for 16 years, we show that a two factor CAPM augmented with a factor mimicking portfolio based on the investor protection metric yields the highest explanatory power. Analysis of Kalman filter time varying investor protection betas reveals investor protection premiums in Egypt, Iraq, Lebanon and Tunisia and corresponding discounts in Israel, Saudi Arabia, Kuwait, Oman, Dubai and Abu Dhabi.

A major feature of development policy modelled on neoclassical notions of financial market integration is that a wide array of smaller markets can benefit from integration by pooling resources and attracting foreign capital to supplement otherwise low levels of domestic investment. However, evidence from Namibia and South Africa suggest that the smaller markets become regulatory price-takers and to maintain the benefits from integration, face prohibitively high costs. We find evidence that the current policy initiatives of regional integration impose costs on smaller, less developed exchanges, which are ultimately borne by local firms seeking cost-effective sustainable external finance.