The Tradeoff between Ex Ante and Ex Post Transaction Costs: Evidence from Legal Opinions

Berkeley Business Law Journal, 2015, 13(1), 217–54.

39 Pages Posted: 3 Nov 2015 Last revised: 13 Aug 2016

See all articles by Benito Arruñada

Benito Arruñada

Pompeu Fabra University - Department of Economics and Business; Barcelona GSE

Carlos Manzanares

Vanderbilt University - College of Arts and Science - Department of Economics

Date Written: November 2, 2015

Abstract

Business firms’ formalization has been seen primarily as an entry barrier, which has often led to policies focused on simplifying formalities and creating minimalist company registries. This approach has been criticized on theoretical grounds for ignoring the tradeoff between ex ante registration and ex post transaction costs. This paper tests for the presence of this tradeoff in the context of company registries. In particular, using purpose-built indexes, we test for whether stronger registration requirements decrease the length of lawyer comments on model transactional legal opinions included in an authoritative report on legal opinions created by the International Bar Association. These lawyer comments proxy for due-diligence costs associated with executing large, cross-country company transactions. We confirm the presence of the tradeoff by finding that in countries with less stringent registration requirements, legal opinion comments are longer, even after controlling for the legal origin, European Union affiliation, and the log of per capita GDP.

Keywords: business registries, company law, business formalization, impersonal transactions, information asymmetry, transaction costs, Doing Business

JEL Classification: O17, K22, K23, L59

Suggested Citation

Arruñada, Benito and Manzanares, Carlos, The Tradeoff between Ex Ante and Ex Post Transaction Costs: Evidence from Legal Opinions (November 2, 2015). Berkeley Business Law Journal, 2015, 13(1), 217–54.. Available at SSRN: https://ssrn.com/abstract=2685608 or http://dx.doi.org/10.2139/ssrn.2685608

Benito Arruñada (Contact Author)

Pompeu Fabra University - Department of Economics and Business ( email )

Ramon Trias Fargas 25-27
Department of Economics and Business
Barcelona, 08005
Spain
+34 93 542 25 72 (Phone)
+34 93 542 17 46 (Fax)

HOME PAGE: http://www.econ.upf.edu/~arrunada

Barcelona GSE ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

Carlos Manzanares

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States

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