Abstract

http://ssrn.com/abstract=163832
 
 

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Choice of Form and Network Externalities


Larry E. Ribstein (Deceased)


University of Illinois College of Law; PERC - Property and Environment Research Center

Bruce H. Kobayashi


George Mason University - School of Law


William & Mary Law Review, Vol. 43, pp. 79-140, 2001

Abstract:     
This Article provides the first detailed empirical analysis of firms' choice of organizational form. It provides important evidence on whether there is an efficient market in organizational forms or firms' choice of form is impeded by network externalities. We focus on formations of limited liability partnerships (LLPs) and limited liability companies (LLCs) in examining the effect of various factors on firms' cho ice of business form. Our data provides important evidence against the network externalities hypothesis. Because the LLP and LLC forms are similar except for the LLP's link to the existing "network" of partnership law, firms would prefer the LLP to the LLC form if network externalities mattered. In fact, we find that firms prefer the LLC form. Moreover, the reduced relative popularity of LLCs in states that impose entity taxes on LLCs but not LLPs, and the increased relative popularity of LLCs in states and years in which LLCs have particular inherent advantages, provide further evidence that the inherent characteristics of the two business forms, rather than network externalities, are driving choice of form.

Number of Pages in PDF File: 40

JEL Classification: G34

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Date posted: September 8, 1999  

Suggested Citation

Ribstein (Deceased), Larry E. and Kobayashi, Bruce H., Choice of Form and Network Externalities. William & Mary Law Review, Vol. 43, pp. 79-140, 2001. Available at SSRN: http://ssrn.com/abstract=163832 or http://dx.doi.org/10.2139/ssrn.163832

Contact Information

Larry Edward Ribstein (Deceased) (Contact Author)
University of Illinois College of Law ( email )
504 E. Pennsylvania Avenue
Champaign, IL 61820
United States
217-244-9881 (Phone)
217-244-1478 (Fax)
PERC - Property and Environment Research Center
2048 Analysis Drive
Suite A
Bozeman, MT 59718
United States

Bruce H. Kobayashi
George Mason University - School of Law ( email )
3301 Fairfax Drive
Arlington, VA 22201
United States
703-993-8034 (Phone)
703-993-8088 (Fax)
HOME PAGE: http://mason.gmu.edu/~bkobayas
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