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The transaction cost implications from business angel ownership in the Caribbean

The transaction cost implications from business angel ownership in the Caribbean
The transaction cost implications from business angel ownership in the Caribbean
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.
blockholder ownership, Caribbean, corporate governance rating/index, emerging economies, governance environments
0964-8410
Hearn, Bruce
45dccea3-9631-4e5e-914c-385896674dc2
Tauringana, Venancio
27634458-b041-4bc1-94da-3e031d777e4f
Ntim, Collins
1f344edc-8005-4e96-8972-d56c4dade46b
Hearn, Bruce
45dccea3-9631-4e5e-914c-385896674dc2
Tauringana, Venancio
27634458-b041-4bc1-94da-3e031d777e4f
Ntim, Collins
1f344edc-8005-4e96-8972-d56c4dade46b

Hearn, Bruce, Tauringana, Venancio and Ntim, Collins (2024) The transaction cost implications from business angel ownership in the Caribbean. Corporate Governance: An International Review. (doi:10.1111/corg.12571).

Record type: Article

Abstract

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.

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Caribbean BA Liquidity 7-Dec-2023 - Accepted Manuscript
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Corporate Governance - 2024 - Hearn - The transaction cost implications from business angel ownership in the Caribbean - Version of Record
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More information

Accepted/In Press date: 11 December 2023
e-pub ahead of print date: 24 January 2024
Published date: 24 January 2024
Keywords: blockholder ownership, Caribbean, corporate governance rating/index, emerging economies, governance environments

Identifiers

Local EPrints ID: 487580
URI: http://eprints.soton.ac.uk/id/eprint/487580
ISSN: 0964-8410
PURE UUID: d0fe1bd1-bc8c-4ac0-a331-2861ce95bc3e
ORCID for Bruce Hearn: ORCID iD orcid.org/0000-0001-9767-0198
ORCID for Venancio Tauringana: ORCID iD orcid.org/0000-0002-1433-324X
ORCID for Collins Ntim: ORCID iD orcid.org/0000-0002-1042-4056

Catalogue record

Date deposited: 27 Feb 2024 19:21
Last modified: 06 Jun 2024 02:03

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