The Economic Impact of Forming a European Company

43 Pages Posted: 11 Sep 2016 Last revised: 16 Nov 2016

See all articles by Lars Hornuf

Lars Hornuf

Technische Universität Dresden; CESifo (Center for Economic Studies and Ifo Institute)

Abdul Mohamed

Cranfield University - School of Management; Cranfield School of Management

Armin Schwienbacher

SKEMA Business School

Date Written: November 15, 2016


Since 2004, companies located in member states of the European Economic Area (EEA) can opt to incorporate in a supranational legal form, the Societas Europaea (SE). Most importantly, the Societas Europaea offers the possibility to choose between the one-tier and two-tier board structure as well as to limit the extent of worker participation, two items that are not possible in some of the member states under national corporate law. In this paper, we investigate the reaction of investors to these changes in corporate governance structure. We find companies located in member states where the SE offers additional legal arbitrage opportunities benefit most. Moreover, our results show that stock price reaction is positive when the decision to incorporate as an SE involves moving the firm’s registered office and that firms are moving to jurisdictions with significantly lower corporate tax rates. Finally, we assess the importance of uncertainty surrounding managers’ decision to reincorporate as an SE and find evidence for corporate uncertainty at the registration date but not at the time of the shareholder meeting.

Keywords: corporate governance, incorporation, board structure, transfer of seat, Societas Europaea (SE)

JEL Classification: G34, G32, K22

Suggested Citation

Hornuf, Lars and Mohamed, Abdul and Mohamed, Abdul and Schwienbacher, Armin, The Economic Impact of Forming a European Company (November 15, 2016). Available at SSRN: or

Lars Hornuf (Contact Author)

Technische Universität Dresden ( email )

Dresden, 01307


CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679

Abdul Mohamed

Cranfield School of Management ( email )

College Road
Cranfield, MK43 0AL
United Kingdom

Cranfield University - School of Management ( email )

Bedfordshire, MK43 0AL
United Kingdom

Armin Schwienbacher

SKEMA Business School ( email )

Avenue Willy Brandt
Euralille, 59777


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