Self-Selection and Heterogeneity in Firms’ Choice of Corporate Law
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Michal Barzuza
Abstract
Firms’ choice of legal regime is not uniform. Despite Delaware’s significant advantages and success in attracting corporations, many firms still choose to incorporate in their home state, and some firms incorporate in a third state, most notably Nevada. Several factors - lawyers’ advice, political influence in the home state, and relative costs of out of state incorporation - were identified as contributing to these patterns. Yet none of these factors neither their combination, fully account for firms’ choices. This Article suggests that unidentified heterogeneity, potentially in managers’ preferences for legal protection, might have contributed to, and could help in explaining, these patterns. Among other factors, this heterogeneity could result, for example, from variations in market forces and, in turn, private benefits that managers extract.
Introducing heterogeneity in managers’ preferences, this Article suggests that managers that share a relatively strong preference for insider protection should be less inclined to incorporate in Delaware, and more inclined to incorporate in their home state where they have political clout, or in Nevada if their strong preference for protection is not satisfied in their home state. The analysis is too preliminary for normative implications to be derived, rather the Article suggests that more research into firms’ heterogeneity and their choice of law could prove valuable.
© 2015 by Walter de Gruyter Berlin/Boston
Articles in the same Issue
- Frontmatter
- Contents
- Introduction
- The Corporate Governance Movement, Banks, and the Financial Crisis
- A State of Inaction: Regulatory Preferences, Rent, and Income Inequality
- Officers’ and Directors’ Liability Under German Law — A Potemkin Village
- Dividend Policy with Controlling Shareholders
- The Impact of the Financial Crisis on Nonfinancial Firms: The Case of Brazilian Corporations and the “Double Circularity” Problem in Transnational Securities Litigation
- Corporate Fiduciary Duties and Prudential Regulation of Financial Institutions
- Quack Corporate Governance, Round III? Bank Board Regulation Under the New European Capital Requirement Directive
- Brave New World: A Proposal for Institutional Investors
- The Vickrey-Clarke-Groves “Pivotal Mechanism” as an Alternative to Voting for Organizational Control
- Self-Selection and Heterogeneity in Firms’ Choice of Corporate Law
Articles in the same Issue
- Frontmatter
- Contents
- Introduction
- The Corporate Governance Movement, Banks, and the Financial Crisis
- A State of Inaction: Regulatory Preferences, Rent, and Income Inequality
- Officers’ and Directors’ Liability Under German Law — A Potemkin Village
- Dividend Policy with Controlling Shareholders
- The Impact of the Financial Crisis on Nonfinancial Firms: The Case of Brazilian Corporations and the “Double Circularity” Problem in Transnational Securities Litigation
- Corporate Fiduciary Duties and Prudential Regulation of Financial Institutions
- Quack Corporate Governance, Round III? Bank Board Regulation Under the New European Capital Requirement Directive
- Brave New World: A Proposal for Institutional Investors
- The Vickrey-Clarke-Groves “Pivotal Mechanism” as an Alternative to Voting for Organizational Control
- Self-Selection and Heterogeneity in Firms’ Choice of Corporate Law
