Where Do Firms Incorporate?

Marco Becht (), Colin Mayer () and Hannes F. Wagner

No 5875, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Over the last few years, a series of rulings by the European Court of Justice (ECJ) has opened up the European Union to cross-border mobility in incorporation. In this paper we explore how deregulation and the costs of regulation have affected the location decisions of firms. Using a newly constructed dataset of companies from around the world incorporating in the U.K. between 1997 and 2005 we find a large increase in new incorporations of limited liability firms from E.U. Member States following the ECJ rulings. We find that incorporation costs, in particular minimum capital requirements, and delays in incorporation are significant influences on firms’ location decisions. Our results confirm the relevance of price to firms’ choice of legal systems. We also report that cross-border incorporation has prompted regulatory competition between E.U. Member States to provide low-cost corporate law to limited liability companies.

Keywords: entrepreneurship; financial regulation; incorporation; regulatory competition (search for similar items in EconPapers)
JEL-codes: G38 K22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cse, nep-eec and nep-law
Date: 2006-10
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