Delaware's Competitive Reach

Journal of Empirical Legal Studies, 2012

49 Pages Posted: 11 Jul 2009 Last revised: 2 Jul 2011

Matthew D. Cain

U.S. Securities and Exchange Commission

Steven Davidoff Solomon

University of California, Berkeley - School of Law; University of California, Berkeley - Berkeley Center for Law, Business and the Economy

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Date Written: January 8, 2010

Abstract

We evaluate the selection of governing law and forum clauses in merger agreements between public firms from 2004-2008. In contrast to prior research, we find that Delaware is the dominant choice among merging parties. During the sample period approximately 66.4% of agreements select Delaware for their governing law and 60% of agreements select Delaware as their choice of forum. This compares to 61.8% of targets during this time that are incorporated in Delaware, and 54.8% of acquirers that are similarly incorporated. Delaware’s attractiveness has increased in recent years in response to exogenous events, and is evidenced by the fact that top-tier legal advisors, foreign acquirers, transactions surrounded by greater financial uncertainty, and larger transactions tend to select Delaware’s forum over other venues. Results are robust to controls for simultaneity and endogeneity. Our results provide support for the theory that Delaware competes by providing quality governing law, and particularly, adjudicative services. They also highlight the contestability of Delaware’s dominance; parties adjust their choices of law and forum during our sample time period in response to legal and other events. We conclude that Delaware competes strongly in other legal products beyond its primary one, the public company charter.

Suggested Citation

Cain, Matthew D. and Davidoff Solomon, Steven, Delaware's Competitive Reach (January 8, 2010). Journal of Empirical Legal Studies, 2012. Available at SSRN: https://ssrn.com/abstract=1431625

Matthew D. Cain

U.S. Securities and Exchange Commission ( email )

United States Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
United States

Steven Davidoff Solomon (Contact Author)

University of California, Berkeley - School of Law ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States

University of California, Berkeley - Berkeley Center for Law, Business and the Economy ( email )

Berkeley, CA 94720-7200

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