Incorporation in offshore financial centers: Naughty or Nice?

We highlight the importance of law and regulation using firms incorporated in offshore financial centers (OFCs) that promise an efficient institutional environment but can also enable expropriation of minority shareholders. We find SEC action is more likely for these firms, which is consistent with lower investor valuation and our model's intuition. Our identification strategy using a Cayman Islands corporate law change, a related court decision, and increases in government scrutiny confirms that easier takeover provisions benefit minority shareholders. Thus, whether these unusual jurisdictions are beneficial or destructive depends on law, regulation, and firm, home country, and listing country characteristics.