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Regulatory Competition and the Market for Corporate Law

83 Pages Posted: 7 Nov 2015 Last revised: 7 Aug 2017

Ofer Eldar

Duke University School of Law; Duke Innovation & Entrepreneurship Initiative

Lorenzo Magnolfi

University of Wisconsin-Madison

Date Written: August 7, 2017

Abstract

This article develops an empirical model of firms’ choice of corporate laws under inertia. Delaware dominates the incorporation market, though recently Nevada, a state whose laws are highly protective of managers, has acquired a sizable market share. Using a novel database of incorporation decisions from 1995- 2013, we show that most firms dislike protectionist laws, such as anti-takeover statutes and liability protections for officers, and that Nevada’s rise is due to the preferences of small firms. Our estimates indicate that despite inertia, Delaware would lose significant market share and revenues if it adopted protectionist laws. Our findings support the hypothesis that Delaware faces competitive pressure to maintain its current laws, and that managers are willing to commit to such laws in order to attract capital.

Keywords: Regulatory Competition, Corporate Governance, Anti-Takeover Statutes, Directors and Officers Liability, Delaware, Nevada, Discrete Choice Models, Inertia

JEL Classification: G34, K22, L00, G28

Suggested Citation

Eldar, Ofer and Magnolfi, Lorenzo, Regulatory Competition and the Market for Corporate Law (August 7, 2017). Yale Law & Economics Research Paper No. 528. Available at SSRN: https://ssrn.com/abstract=2685969 or http://dx.doi.org/10.2139/ssrn.2685969

Ofer Eldar (Contact Author)

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Lorenzo Magnolfi

University of Wisconsin-Madison ( email )

1180 Observatory Drive
Madison, WI Wisconsin 53706
United States
6082628789 (Phone)

HOME PAGE: http://lorenzomagnolfi.com

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