Firms' Decisions Where to Incorporate
Lucian A. Bebchuk
Harvard Law School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR) and European Corporate Governance Institute (ECGI)
Tel Aviv University - Eitan Berglas School of Economics; Harvard Law School; National Bureau of Economic Research (NBER)
Journal of Law and Economics, Vol. 46, pp. 383-425, 2003
Harvard Law and Economics Discussion Paper No. 351
ECGI - Finance Working Paper No. 003
This paper empirically investigates the decisions of publicly traded firms where to incorporate. We study the features of states that make them attractive to incorporating firms and the characteristics of firms that determine whether they incorporate in or out of their state of location. We find that states that offer stronger antitakeover protections are substantially more successful both in retaining in-state firms and in attracting out-of-state incorporations. We estimate that, compared with adopting no antitakeover statutes, adopting all standard antitakeover statutes enabled the states that adopted them to more than double the percentage of local firms that incorporated in-state (from 23% to 49%). Indeed, we find no evidence that the incorporation market has even penalized the three states that passed antitakeover statutes widely viewed as detrimental to shareholders. We also find that there is commonly a big difference between a state's ability to attract incorporations from firms located in and out of the state, and we investigate several possible explanations for this home-state advantage. Our findings have significant implications for corporate governance, regulatory competition, and takeover law.
The data on which this paper is based is available for downloading at Lucian Bebchuk's home page.
Number of Pages in PDF File: 49
Keywords: Delaware, incorporation, corporate governance, regulatory competition, managers, shareholders, takeovers, antitakeover statutes, antitakeover defenses, home bias
JEL Classification: G30, G38, H70, K22
Date posted: April 11, 2003 ; Last revised: April 29, 2009