When: Аpril 26^th, 2018, 16:00 till 18:00

Where: GSOM SPbU, Volkhovskiy per., 3, room 408

The event is recommended for: doctoral students and academic staff

Language: Russian

Registration is required

Authors of the research:

Keith D. Brouthers (King`s College London), Päivi Karhunen (Aalto University School of Business) and Svetlana Ledyaeva (Aalto University School of Business).

Extended abstract:

In this paper we build on existing OFC research and the concept of institutional arbitrage to concentrate on the differences in investment motives between investors relying on licit and illicit funds. More specifically, we examine the round-tripping effects of OFC funds into one emerging market (Russia) and look at the differences in OFC location choices between those using licit funds and those relying on illicit funds. We suggest that emerging market firms dealing with legal (licit) funds are attracted to OFCs that offer institutional arbitrage opportunities that improve financial performance through more favorable tax rates and provide financial secrecy, which helps reduce the overall tax burden of the company. In contrast, we suggest that for those emerging market firms involved with illicit funds OFCs providing institutional arbitrage opportunities that keep its identify secret and protect the funds from home government intervention are sought. This secrecy and improved property rights help protect the owners of illicit funds from home government actions.

Our empirical findings confirm that favorable tax rates in offshore financial center do motivate capital round-tripping but only of licit funds represented in this study by manufacturing sector. Furthermore, the truly positive relationship between low tax rates in offshore financial centers and magnitude of round-tripping activities with licit funds is only found for offshore financial centers with high financial secrecy and when round-tripped capital returns to Russia in the form of establishments wholly owned by investors from OFC.

Empirical results for the relationship between strong property rights in offshore financial center and magnitude of capital round-tripping are less straightforward. In particular, when round-tripped capital returns to Russia in the form of establishments wholly owned by OFC investors, strong property rights in OFC appear to be important factor only for round-tripping of licit funds and OFC secrecy does not seem to significantly moderate this effect. However, when round-tripped capital returns to Russia in the form of joint ventures with Russian partners, offshore financial centers with combination of strong property rights and high secrecy are strongly preferred by both licit and illicit funds.

About the speaker:

Svetlana Ledyaeva

Svetlana Ledyaeva - PhD (Econ.), Assistant Professor, Aalto University School of Business (former Helsinki School of Economics), Department of Economics, 2012.

Work experience:

• From 2014 to present: Assistant Professor in Economics, former Helsinki School of Economics
• In 2008-2013: Researcher, Post-doc research fellow (from 2012), former Helsinki School of Economics
• In 2005-2008: Researcher, former University of Joensuu, Department of Economics and Business Administration

Specific research interests:

• Russian economy
• Foreign Investment and multinational companies in Russia
• Corruption and democracy in Russia
• Regional economy in Russia
• Offshore finance in Russia
• Economic effects of climate change in Russia and wordwide
• International trade of the BRIC countries