Regulatory Competition and the Market for Corporate Law

90 Pages Posted: 7 Nov 2015 Last revised: 14 Jul 2020

See all articles by Ofer Eldar

Ofer Eldar

University of California, Berkeley - School of Law; European Corporate Governance Institute (ECGI)

Lorenzo Magnolfi

University of Wisconsin-Madison

Date Written: April 15, 2019

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 database of firm 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

Eldar, Ofer and Magnolfi, Lorenzo, Regulatory Competition and the Market for Corporate Law (April 15, 2019). 12(2) American Economic Journal: Microeconomics (2020): 60-98, Duke Law School Public Law & Legal Theory Series No. 2020-42, Available at SSRN: https://ssrn.com/abstract=2685969 or http://dx.doi.org/10.2139/ssrn.2685969

Ofer Eldar (Contact Author)

University of California, Berkeley - School of Law ( email )

215 Law Building
Berkeley, CA 94720-7200
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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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