Regulatory Competition and the Market for Corporate Law

Ofer Eldar and Lorenzo Magnolfi

American Economic Journal: Microeconomics, 2020, vol. 12, issue 2, 60-98

Abstract: This 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-codes: G34 G38 K21 K22 L25 L51 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (4)

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DOI: 10.1257/mic.20180056

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