Corporate Governance Law: Firm Heterogeneity and the Market for Corporate Domicile
58 Pages Posted: 24 Jul 2012
Date Written: July 20, 2012
Abstract
This paper uses a discrete choice framework to analyze state design and firm choice of the implications of incorporation: corporate governance laws, corporate taxes and court features. Firms --- differentiated by ownership, management, industry concentration, financial profile and unobservable dimensions --- freely choose their preferred state of incorporation or reincorporation for each financial year. The revealed preference embedded in these many observable choices allows for the identification and quantification of the differential corporate governance preferences within and across firms. For example, we find that on average, firms like antitakeover statutes, but, consistent with an agency story, firms with an institutional shareholder block and venture capital backed firms dislike them. On average, firms dislike mandatory governance statutes restricting managerial power and facilitating the representation of minority shareholders; however, firms in concentrated industries are much less influenced by these laws. Additionally, all firms dislike well functioning courts, consistent with a litigation deterrence motive. We also find that firms are very responsive to incorporation and franchise taxes, which allows us to quantify their preferences for law and court features. Counterfactual policies aimed at creating uniform federal law and restricting firm choice are simulated using the firm specific preferences recovered from our model.
Keywords: Corporate Governance, Law and Economics, Incorporation, Demand Estimation, Differentiated Products, Discrete Choice
JEL Classification: G30, G34, G38, K22, L19
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Corporate Governance and Equity Prices
By Paul A. Gompers, Joy L. Ishii, ...
-
What Matters in Corporate Governance?
By Lucian A. Bebchuk, Alma Cohen, ...
-
Governance Mechanisms and Equity Prices
By Martijn Cremers and Vinay B. Nair
-
Did New Regulations Target the Relevant Corporate Governance Attributes?
By Reena Aggarwal and Rohan Williamson
-
Governance Mechanisms and Bond Prices
By Martijn Cremers, Vinay B. Nair, ...
-
Corporate Governance and Merger Activity in the U.S.: Making Sense of the 1980s and 1990s
-
Corporate Governance and Merger Activity in the U.S.: Making Sense of the 1980s and 1990s
-
The Costs of Entrenched Boards
By Lucian A. Bebchuk and Alma Cohen