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Where Do Firms Incorporate? Deregulation and the Cost of Entry

44 Pages Posted: 2 Jun 2006  

Marco Becht

Solvay Brussels School of Economics and Management (ULB); European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Colin Mayer

University of Oxford - Said Business School; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); University of Oxford - Said Business School

Hannes F. Wagner

Bocconi University - Department of Finance; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research

Multiple version iconThere are 2 versions of this paper

Date Written: August 2007

Abstract

We study how deregulation of corporate law affects the decision of entrepreneurs of where to incorporate. Recent rulings by the European Court of Justice (ECJ) have enabled entrepreneurs to select their country of incorporation independently of their real seat. We analyze foreign incorporations in the U.K., where incorporations of limited liability companies can be arranged at low cost. Using data for over 2 million companies from around the world incorporating in the U.K., we find a large increase in cross-country incorporations from E.U. Member States following the ECJ rulings. In line with regulatory cost theories, incorporations are primarily driven by minimum capital requirements and setup costs in home countries. We record widespread use of special incorporation agents to facilitate legal mobility across countries.

Keywords: Incorporation, costs of regulation, regulatory competition

JEL Classification: G38, K22

Suggested Citation

Becht, Marco and Mayer, Colin and Wagner, Hannes F., Where Do Firms Incorporate? Deregulation and the Cost of Entry (August 2007). ECGI - Law Working Paper No. 70/2006; Journal of Corporate Finance, Vol. 14, No. 3, 2008. Available at SSRN: https://ssrn.com/abstract=906066 or http://dx.doi.org/10.2139/ssrn.906066

Marco Becht (Contact Author)

Solvay Brussels School of Economics and Management (ULB) ( email )

42 Avenue F. D. Roosevelt
1050
Brussels, 1050
Belgium
+32 2 6504466 (Phone)

HOME PAGE: http://www.solvay.edu/profile/marcobecht

European Corporate Governance Institute (ECGI) ( email )

Palace of the Academies
Rue Ducale 1 Hertogstraat
Brussels, 1000
Belgium

HOME PAGE: http://www.ecgi.org/members_directory/member.php?member_id=6

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Colin Mayer

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 1865 288112 (Phone)
+44 1865 288805 (Fax)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 1865 288112 (Phone)
+44 1865 288805 (Fax)

Hannes Wagner

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

HOME PAGE: http://faculty.unibocconi.eu/hanneswagner

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy

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