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Regulatory Competition and the Market for Corporate Law†

Regulatory Competition and the Market for Corporate Law† AbstractThis article develops an empirical model of firms’ choice of corporate laws under inertia. Delaware dominates the incorporation market, though recently Nevada, a state whose laws are highly protective of managers, has acquired a sizable market share. Using a database of firm incorporation decisions from 1995 to 2013, we show that most firms dislike protectionist laws, such as anti-takeover statutes and liability protections for officers, and that Nevada’s rise is due to the preferences of small firms. Consistent with the bonding hypothesis, our estimates indicate that despite inertia, Delaware would lose significant market share and revenues if it adopted protectionist laws. (JEL G34, G38, K21, K22, L25, L51) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Microeconomics American Economic Association

Regulatory Competition and the Market for Corporate Law†

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Publisher
American Economic Association
Copyright
Copyright © 2020 © American Economic Association
ISSN
1945-7685
DOI
10.1257/mic.20180056
Publisher site
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Abstract

AbstractThis article develops an empirical model of firms’ choice of corporate laws under inertia. Delaware dominates the incorporation market, though recently Nevada, a state whose laws are highly protective of managers, has acquired a sizable market share. Using a database of firm incorporation decisions from 1995 to 2013, we show that most firms dislike protectionist laws, such as anti-takeover statutes and liability protections for officers, and that Nevada’s rise is due to the preferences of small firms. Consistent with the bonding hypothesis, our estimates indicate that despite inertia, Delaware would lose significant market share and revenues if it adopted protectionist laws. (JEL G34, G38, K21, K22, L25, L51)

Journal

American Economic Journal: Microeconomics – American Economic Association

Published: May 1, 2020

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