Delaware Law as Lingua Franca: Theory and Evidence
Jesse M. Fried
Harvard Law School; European Corporate Governance Institute (ECGI)
Brian J. Broughman
Indiana University Maurer School of Law
Darian M. Ibrahim
University of Wisconsin Law School
October 9, 2012
Harvard Public Law Working Paper No. 12-38
Why does Delaware dominate the market for corporate charters? Analyzing the incorporation and reincorporation decisions of 1,850 VC-backed startups, we show that firms often choose Delaware corporate law because it is the only law “spoken” by both in-state and out-of-state investors. Indeed, this “lingua-franca” effect is just as important as other factors that have been found to influence domicile decisions, such as corporate-law flexibility and the quality of a state’s judiciary. Our study provides further evidence that Delaware’s dominance is not necessarily due to the intrinsic quality of its corporate law.
Number of Pages in PDF File: 36
Keywords: incorporation, domicile, Delaware, corporate governance, entrepreneurs, founders, startups, corporation, corporate law, charters, venture capital
JEL Classification: K22, G24, G34working papers series
Date posted: November 4, 2012 ; Last revised: January 10, 2013
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