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The Economic Impact of Forming a European Company

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

Lars Hornuf

University of Bremen - Faculty of Business Studies and Economics; Max Planck Institute for Innovation and Competition; CESifo (Center for Economic Studies and Ifo Institute)

Abdul Mohamed

Cranfield University - School of Management

Armin Schwienbacher

SKEMA Business School

Date Written: November 15, 2016

Abstract

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 Schwienbacher, Armin, The Economic Impact of Forming a European Company (November 15, 2016). Available at SSRN: https://ssrn.com/abstract=2837009 or http://dx.doi.org/10.2139/ssrn.2837009

Lars Hornuf (Contact Author)

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

Poschinger Str. 5
Munich, DE-81679
Germany

University of Bremen - Faculty of Business Studies and Economics ( email )

Bremen, D-28359
Germany
+49 89 20348619 (Phone)

HOME PAGE: http://www.hornuf.com

Max Planck Institute for Innovation and Competition

Marstallplatz 1
Munich, 80539
Germany

Abdul Mohamed

Cranfield University - School of Management ( email )

Bedfordshire, MK43 0AL
United Kingdom

Armin Schwienbacher

SKEMA Business School ( email )

Lille
France

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