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We ask if companies can attract foreign equity capital by improving the transparency of their financial statements. Using a large panel of firms across 51 countries outside the United States, we show that the answer is yes, but only in countries with relatively high levels of investor protection. In countries with poor investor protection, unilaterally increasing firm‐level transparency has no effect on foreign ownership. Furthermore, our results indicate that in countries with higher levels of investor protection, the positive association between transparency and foreign ownership is stronger following a country's adoption of the International Financial Reporting Standards.

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Theory and recent empirical literature suggest that social and professional connections may influence corporate policy. However, inference may be biased by the possibility that firms who share peers also share unobserved characteristics that are correlated with observed policy. Using a novel identification strategy, we predict and find that exogenous board connections through wellknown island tax havens have a significant effect on corporate tax policy. Specifically, we find that U.S. firms with a director who also serves on the board of a firm domiciled in the islands of the Bahamas, Bermuda, or the Caymans, exhibit significantly greater tax avoidance than other U.S. firms. The presence or arrival of such a director is associated with a reduction of between one and three percentage points in the firm's effective tax rate. The impact of island directors on tax policy increases with the director's influence on the board, and is robust to several measures of tax avoidance.

Conventional wisdom suggests that institutional development is a precursor to financial sector development. Using a panel of 122 countries over the period 1970-2000, we find that while there is a correlation between the quality of legal institutions and financial development, the relationship is not causal. Changes in the quality of legal institutions do not predict changes in the level of financial development. The results suggest that legal institutions and the financial sector develop simultaneously and are jointly determined by unobservable country-specific factors.