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Where do firms incorporate? Deregulation and the cost of entry

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  • Becht, Marco
  • Mayer, Colin
  • Wagner, Hannes F.

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.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Corporate Finance.

Volume (Year): 14 (2008)
Issue (Month): 3 (June)
Pages: 241-256

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Handle: RePEc:eee:corfin:v:14:y:2008:i:3:p:241-256

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Web page: http://www.elsevier.com/locate/jcorpfin

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References

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  1. Djankov, Simeon & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2001. "The Regulation of Entry," Working Paper Series rwp01-015, Harvard University, John F. Kennedy School of Government.
  2. Fonseca, Raquel & Lopez-Garcia, Paloma & Pissarides, Christopher A., 2001. "Entrepreneurship, start-up costs and employment," European Economic Review, Elsevier, vol. 45(4-6), pages 692-705, May.
  3. Daines, Robert, 2001. "Does Delaware law improve firm value?," Journal of Financial Economics, Elsevier, vol. 62(3), pages 525-558, December.
  4. Oren Bar-Gill & Michal Barzuza & Lucian Bebchuk, 2002. "The Market for Corporate Law," NBER Working Papers 9156, National Bureau of Economic Research, Inc.
  5. Roberta Romano, 1998. "Empowering Investors: A Market Approach to Securities Regulation," Yale School of Management Working Papers ysm74, Yale School of Management.
  6. Guhan Subramanian, 2004. "The Disappearing Delaware Effect," Journal of Law, Economics and Organization, Oxford University Press, vol. 20(1), pages 32-59, April.
  7. Kahan, Marcel & Kamar, Ehud, 2002. "The Myth of State Competition in Corporate Law," Berkeley Olin Program in Law & Economics, Working Paper Series qt3xq7p9xw, Berkeley Olin Program in Law & Economics.
  8. Romano, Roberta, 1985. "Law as a Product: Some Pieces of the Incorporation Puzzle," Journal of Law, Economics and Organization, Oxford University Press, vol. 1(2), pages 225-83, Fall.
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Citations

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Cited by:
  1. Djankov, Simeon, 2008. "The Regulation of Entry: A Survey," CEPR Discussion Papers 7080, C.E.P.R. Discussion Papers.
  2. Njoya, W., 2010. "Employee Ownership in the European Company: Reflexive Law, Reincorporation and Escaping Codetermination," ESRC Centre for Business Research - Working Papers wp416, ESRC Centre for Business Research.
  3. Chris Mallin & Kean Ow-Yong, 2010. "The UK Alternative Investment Market – Ethical Dimensions," Journal of Business Ethics, Springer, vol. 95(2), pages 223-239, September.
  4. Loureiro, Gilberto, 2010. "The reputation of underwriters: A test of the bonding hypothesis," Journal of Corporate Finance, Elsevier, vol. 16(4), pages 516-532, September.
  5. Jodie A. Kirshner, 2009. "A Third Way: Regional Restructuring and the Societas Europaea," ESRC Centre for Business Research - Working Papers wp385, ESRC Centre for Business Research.
  6. Goergen, M. & Renneboog, L.D.R., 2008. "Contractual Corporate Governance," Discussion Paper 2008-41, Tilburg University, Center for Economic Research.

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