Lawyers, Ignorance, and the Dominance of Delaware Corporate Law

31 Pages Posted: 26 Oct 2011 Last revised: 6 Jun 2012

William J. Carney

Emory University School of Law

George B. Shepherd

Emory University School of Law

Joanna Shepherd

Emory University School of Law

Date Written: October 25, 2011

Abstract

Why does Delaware continue to dominate the market for incorporations even though recent research has shown that the quality of Delaware corporate law has declined substantially? We focus on the rational ignorance of lawyers and investors. Using the results of our survey of lawyers involved in initial public offerings (IPOs) as well as our analysis of companies involved in IPOs, we conclude that lawyers recommend Delaware because they are ignorant about other states’ law. Because Delaware is so dominant, law schools focus on Delaware corporate law, and a lawyer rationally learns the corporate law only of Delaware and her home state. Regardless of the quality of the law of other states, lawyers will not recommend it because they are unfamiliar with it. Likewise, lawyers recommend only Delaware law because they believe that investors are ignorant of other states’ law.

Keywords: Delaware, incorporation, lawyers

JEL Classification: G34, K22

Suggested Citation

Carney, William J. and Shepherd, George B. and Shepherd, Joanna, Lawyers, Ignorance, and the Dominance of Delaware Corporate Law (October 25, 2011). Harvard Business Law Review, Forthcoming; Emory Law and Economics Research Paper No. 11-118; Emory Public Law Research Paper No. 11-171. Available at SSRN: https://ssrn.com/abstract=1949261 or http://dx.doi.org/10.2139/ssrn.1949261

William J. Carney

Emory University School of Law ( email )

1301 Clifton Road
Atlanta, GA 30322
United States
404-727-6807 (Phone)
404-727-6820 (Fax)

George B. Shepherd (Contact Author)

Emory University School of Law ( email )

1301 Clifton Road
Atlanta, GA 30322
United States
404-727-6978 (Phone)
404-727-6820 (Fax)

Joanna Shepherd

Emory University School of Law ( email )

1301 Clifton Road
Atlanta, GA 30322
United States
404-727-8957 (Phone)

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