The influence of private equity entrepreneurial investment on firm transaction costs in offshore emerging economies

Abstract

This study focuses on the transaction cost of share trading for listed firms with private equity ownership within emerging economies. We build on a recently advanced emerging market private equity business model (Taussig & Delios, 2016) and complement this model by applying the ownership competency theory of Foss, Klein, Lien, Zellweger & Zenger (2021). Our study draws on a unique sample of listed firms from eight national securities exchanges across the Caribbean region. We find that private equity ownership increases firms’ transaction costs, as reflected in higher estimated bid-ask quoted share price spreads. However, this association is negatively moderated by (1) the firm having a related party located in an offshore jurisdiction and (2) the firm adopting a shareholder value enhancing corporate governance model. In a broader context, our analysis highlights the importance of institutional fit of private equity in the local institutional fabric within which investee firms are embedded.

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Identifiers

ORCID for Bruce Hearn: orcid.org/0000-0001-9767-0198

ORCID for Ven Tauringana: orcid.org/0000-0002-1433-324X

ORCID for Collins Ntim: orcid.org/0000-0002-1042-4056

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