The Incorporation Choices of Privately Held Corporations

36 Pages Posted: 3 Dec 2007 Last revised: 20 Dec 2008

Jens Dammann

University of Texas at Austin - School of Law

Matthias Schundeln

Goethe University Frankfurt

Date Written: December 8, 2008

Abstract

Exploiting a large new database, this paper explores the incorporation choices of closely held U.S. corporations. The majority of corporations in our sample incorporate in the state in which their primary place of business (PPB) is located. However, among the corporations with more than 1000 employees, only about half incorporate in their PPB state, and of those that do not, more than half are incorporated in Delaware. We find statistically significant and robust evidence that corporations from states with low quality judiciaries are more likely to incorporate outside of their PPB state. Furthermore, corporations are more likely to migrate away from states where the risk of veil piercing is perceived to be high or that offer a particularly generous level of minority shareholder protection. The study complements empirical studies of incorporation choices of public companies, and offers new empirical evidence related to several theoretical debates concerning the market for corporate law.

JEL Classification: G30, G38, H70, K22

Suggested Citation

Dammann, Jens and Schundeln, Matthias, The Incorporation Choices of Privately Held Corporations (December 8, 2008). U of Texas Law, Law and Econ Research Paper No. 119. Available at SSRN: https://ssrn.com/abstract=1049581 or http://dx.doi.org/10.2139/ssrn.1049581

Jens Dammann (Contact Author)

University of Texas at Austin - School of Law ( email )

727 East Dean Keeton Street
Austin, TX 78705
United States

Matthias Schundeln

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

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