66 Pages Posted: 7 Nov 2015 Last revised: 17 Dec 2016
Date Written: December 14, 2016
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. Consistent with the bonding hypothesis, our estimates indicate that despite inertia, Delaware would lose significant market share and revenues if it adopted protectionist laws.
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: Suggested Citation
Eldar, Ofer and Magnolfi, Lorenzo, Regulatory Competition and the Market for Corporate Law (December 14, 2016). Yale Law & Economics Research Paper No. 528. Available at SSRN: https://ssrn.com/abstract=2685969 or http://dx.doi.org/10.2139/ssrn.2685969