Regulatory Competition and Legal Determinacy in Corporate Law

Abstract:     
The debate on regulatory competition has long been at the heart of corporate law scholarship. One of the most contentious issues today is the relationship between regulatory competition and legal determinacy: Critics of charter competition claim that such competition may lead Delaware to rely excessively upon vague standards that make it difficult to predict legal outcomes. Supporters of state competition reject that view.

What both sides have in common, though, is a dearth of hard evidence to support their respective accounts. This is unsurprising. To show that regulatory competition makes - or does not make - corporate law less determinate, one has to demonstrate how corporate law would look in the absence of regulatory competition - hardly an easy task.

To overcome this problem and shed some empirical light on the matter, the present article relies on a comparative approach: It contrasts Delaware law with two other major Western corporate law systems, namely those of Germany and the United Kingdom. Despite recent steps toward a European charter market, neither country’s law on public corporations has been shaped by regulatory competition. However, as I show, both legal systems tend to rely even more strongly on indeterminate standards than Delaware does. This finding is difficult to explain for those who attribute Delaware’s reliance on standards to regulatory competition

Keywords: Delaware, regulatory competition, determinacy, indeterminacy

JEL Classifications: K22, K41, K00, K33

Working Paper Series