Federal Corporate Law: Lessons from History

48 Pages Posted: 29 Aug 2006 Last revised: 15 Apr 2015

See all articles by Lucian A. Bebchuk

Lucian A. Bebchuk

Harvard Law School; National Bureau of Economic Research (NBER)

Assaf Hamdani

Tel Aviv University Buchman Faculty of Law; ECGI


This paper analyzes the history of federal intervention in corporate law and draws from it lessons for the future. We show that federal intervention has generally not alternated between tightening state law restrictions on corporate insiders and relaxing them. Rather, federal law has systematically replaced state law arrangements with ones imposing tighter constraints on insiders. Without federal intervention, state law would have produced a corporate system that provides substantially weaker investor protection than the United States enjoys today. We also show that federal interventions have systematically taken advantage of additional tools (including public enforcement, criminal sanctions, gatekeeper liability, and agency-based regulations) beyond those that state law has chosen or been able to use. Overall, unless one views existing levels of investor protection as substantially excessive, past patterns suggest that state competition on its own is unlikely to produce an adequate level of investor protection. Furthermore, the recurring need for federal officials to rectify state law failures in order to provide investors with adequate protection indicates that federal lawmaking should be proactive rather than reactive. We thus recommend that, going forward, federal policymakers examine in a systematic and comprehensive fashion which corporate law areas should be federalized either because tighter restrictions on insiders are needed or because the additional tools available to federal law would be useful.

Keywords: State competition, regulatory competition, Delaware regulations, incorporations, Corporate Charters, corporate law, corporate governance, securities regulations, SEC

JEL Classification: G30, G38, H70, K22

Suggested Citation

Bebchuk, Lucian A. and Hamdani, Assaf, Federal Corporate Law: Lessons from History. Columbia Law Review, Vol. 106, pp. 1793-1839, 2006; Harvard Law and Economics Discussion Paper No. 558. Available at SSRN: https://ssrn.com/abstract=927008

Lucian A. Bebchuk (Contact Author)

Harvard Law School ( email )

Cambridge, MA 02138
United States
617-495-3138 (Phone)
617-812-0554 (Fax)

HOME PAGE: http://www.law.harvard.edu/faculty/bebchuk/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Assaf Hamdani

Tel Aviv University Buchman Faculty of Law; ECGI ( email )

Ramat Aviv
Tel Aviv 69978, IL

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