The Influence of Antitakeover Statutes on Incorporation Choice: Evidence on the "Race" Debate and Antitakeover Overreaching

71 Pages Posted: 4 Dec 2001  

Guhan Subramanian

Harvard Business School

Date Written: December 2001

Abstract

Commentators have long debated whether competition among
states for corporate charters represents a race to the top
or a race to the bottom. Race-to-the-top advocates have
recently gained ground in this debate on the basis of the
general migration to Delaware in the 1990s and empirical
evidence suggesting that Delaware incorporation increases
shareholder wealth. This article uses second-generation
state antitakeover statutes to shed additional light on this
debate. I use a new database of reincorporations from the
1990s to show that managers generally migrate to (and fail
to migrate away from) typical antitakeover statutes Given
the robust econometric evidence that these statutes increase
managerial agency costs and reduce shareholder wealth, my
results generally support the race-to-the-bottom view.
However, I also find that managers migrate away from the
more severe antitakeover statutes in Massachusetts, Ohio,
and Pennsylvania. This finding introduces the possibility
for "overreaching" in the corporate charter marketplace and
suggests important limits on the race to the bottom.
The results have implications for recent developments in
corporate charter competition in both the United States and
the European Union.

JEL Classification: G34, G38, K22

Suggested Citation

Subramanian, Guhan, The Influence of Antitakeover Statutes on Incorporation Choice: Evidence on the "Race" Debate and Antitakeover Overreaching (December 2001). Harvard NOM Working Paper No. 01-10. Available at SSRN: https://ssrn.com/abstract=292679 or http://dx.doi.org/10.2139/ssrn.292679

Guhan Subramanian (Contact Author)

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
617-495-9784 (Phone)
617-496-7379 (Fax)

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