References (46)



Delaware Law as Lingua Franca: Theory and Evidence

Brian J. Broughman

Indiana University Maurer School of Law

Jesse M. Fried

Harvard Law School; European Corporate Governance Institute (ECGI)

Darian M. Ibrahim

University of Wisconsin Law School

January 1, 2014

Harvard Public Law Working Paper No. 12-38

Why would a firm incorporate in Delaware rather than in its home state? Most explanations focus on the inherent features of Delaware corporate law that can make it more attractive than home-state law for shareholders (or insiders). We offer an alternative account: a firm may choose Delaware law simply because it is familiar to, and thus can serve as a “lingua franca” for, both in-state and out-of-state investors. Analyzing the incorporation decisions of 1,850 VC-backed startups, we find evidence that firms often choose Delaware corporate law as a lingua franca. Indeed, this lingua-franca effect appears to be more important than other factors influencing domicile, such as corporate-law flexibility and the quality of a state’s judiciary. Our study contributes to the literature on the market for corporate charters by providing evidence that Delaware’s continued dominance is partially driven by familiarity effects rather than entirely due to the inherent features of its law.

Number of Pages in PDF File: 31

Keywords: incorporation, domicile, Delaware, corporate governance, entrepreneurs, founders, startups, corporation, corporate law, charters, venture capital

JEL Classification: K22, G24, G34

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Date posted: November 4, 2012 ; Last revised: January 3, 2014

Suggested Citation

Broughman, Brian J. and Fried, Jesse M. and Ibrahim, Darian M., Delaware Law as Lingua Franca: Theory and Evidence (January 1, 2014). Harvard Public Law Working Paper No. 12-38. Available at SSRN: http://ssrn.com/abstract=2117967 or http://dx.doi.org/10.2139/ssrn.2117967

Contact Information

Brian J. Broughman
Indiana University Maurer School of Law ( email )
211 S. Indiana Avenue
Bloomington, IN 47405
United States
Jesse M. Fried (Contact Author)
Harvard Law School ( email )
1575 Massachusetts
Griswold Hall 506
Cambridge, MA 02138
United States
617-384-8158 (Phone)
HOME PAGE: http://www.law.harvard.edu/faculty/directory/10289/Fried
European Corporate Governance Institute (ECGI) ( email )
B-1050 Brussels
Darian M. Ibrahim
University of Wisconsin Law School ( email )
975 Bascom Mall
Madison, WI 53706
United States
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