Where Do Firms Incorporate? Deregulation and the Cost of Entry

44 Pages Posted: 2 Jun 2006

See all articles by Marco Becht

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)

Hannes F. Wagner

Bocconi University - Department of Finance; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research; European Corporate Governance Institute (ECGI)

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 )

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

European Corporate Governance Institute (ECGI) ( email )

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Centre for Economic Policy Research (CEPR)

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Colin Mayer

University of Oxford - Said Business School ( email )

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Oxford, OX1 1HP
Great Britain
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Centre for Economic Policy Research (CEPR)

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United Kingdom

European Corporate Governance Institute (ECGI)

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1000 Brussels
Belgium

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

Hannes F. Wagner

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

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

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

Via Roentgen 1
Milan, 20136
Italy

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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