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Where Do Firms Incorporate? Deregulation and the Cost of EntryMarco BechtFree University of Brussels (VUB/ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); Université Libre de Bruxelles (ULB) - Solvay Brussels School of Economics and Management; European Corporate Governance Institute (ECGI) Colin MayerUniversity of Oxford - Said Business School; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI) Hannes F. WagnerBocconi University - Department of Finance; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research August 2007 ECGI - Law Working Paper No. 70/2006 Journal of Corporate Finance, Vol. 14, No. 3, 2008 Abstract: We study how deregulation of corporate law affects the decision of entrepreneurs of where to incorporate. Recent rulings by the European Court of Justice (ECJ) have enabled entrepreneurs to select their country of incorporation independently of their real seat. We analyze foreign incorporations in the U.K., where incorporations of limited liability companies can be arranged at low cost. Using data for over 2 million companies from around the world incorporating in the U.K., we find a large increase in cross-country incorporations from E.U. Member States following the ECJ rulings. In line with regulatory cost theories, incorporations are primarily driven by minimum capital requirements and setup costs in home countries. We record widespread use of special incorporation agents to facilitate legal mobility across countries.
Number of Pages in PDF File: 44 Keywords: Incorporation, costs of regulation, regulatory competition JEL Classification: G38, K22 working papers seriesDate posted: June 2, 2006Suggested CitationContact Information
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