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The Market for Corporate Law

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  • Oren Bar-Gill
  • Michal Barzuza
  • Lucian Bebchuk

Abstract

This paper develops a model of the competition among states in providing corporate law rules. Such competition is shown to produce optimal rules with respect to issues that do not have a substantial effect on management's private benefits but not with respect to issues that have such an effect. We analyze why a dominant state such as Delaware can emerge, as well as the price that this state will set and the profits it will make. The results of the model can help explain the existing empirical evidence. They also highlight the importance of the rules governing reincorporation and the potential benefits of giving shareholders the power to make reincorporation decisions.

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Bibliographic Info

Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 162 (2006)
Issue (Month): 1 (March)
Pages: 134-160

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200603)162:1_134:tmfcl_2.0.tx_2-x

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References

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  1. Marianne Bertrand & Sendhil Mullainathan, 1998. "Is There Discretion in Wage Setting? A Test Using Takeover Legislation," Working Papers 785, Princeton University, Department of Economics, Industrial Relations Section..
  2. Roberta Romano, 1998. "Empowering Investors: A Market Approach to Securities Regulation," Yale School of Management Working Papers, Yale School of Management ysm74, Yale School of Management.
  3. Daines, Robert, 2001. "Does Delaware law improve firm value?," Journal of Financial Economics, Elsevier, Elsevier, vol. 62(3), pages 525-558, December.
  4. Lucian Arye Bebchuk & Allen Ferrell, 2001. "A New Approach to Takeover Law and Regulatory Competition," NBER Working Papers 8148, National Bureau of Economic Research, Inc.
  5. Lucian Bebchuk & Oliver Hart, 2001. "Takeover bids vs. Proxy Fights in Contests for Corporate Control," NBER Working Papers 8633, National Bureau of Economic Research, Inc.
  6. Lucian Bebchuk & Alma Cohen & Allen Ferrell, 2002. "Does the Evidence Favor State Competition in Corporate Law?," NBER Working Papers 9380, National Bureau of Economic Research, Inc.
  7. Marianne Bertrand & Sendhil Mullainathan, 1998. "Executive Compensation and Incentives: The Impact of Takeover Legislation," NBER Working Papers 6830, National Bureau of Economic Research, Inc.
  8. Bebchuk, Lucian Arye & Cohen, Alma, 2002. "Firms' Decisions on Where to Incorporate," CEPR Discussion Papers 3514, C.E.P.R. Discussion Papers.
  9. Karpoff, Jonathan M. & Malatesta, Paul H., 1989. "The wealth effects of second-generation state takeover legislation," Journal of Financial Economics, Elsevier, Elsevier, vol. 25(2), pages 291-322, December.
  10. Roberta Romano & Sanjai Bhagat, 2001. "Event Studies and the Law: Part II - Empirical Studies of Corporate Law," Yale School of Management Working Papers, Yale School of Management ysm183, Yale School of Management.
  11. Romano, Roberta, 1985. "Law as a Product: Some Pieces of the Incorporation Puzzle," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 1(2), pages 225-83, Fall.
  12. Bebchuk, Lucian Arye & Cohen, Alma, 2003. "Firms' Decisions Where to Incorporate," Journal of Law and Economics, University of Chicago Press, vol. 46(2), pages 383-425, October.
  13. Lucian Arye Bebchuk & Allen Ferrell, 2000. "Federalism and Takeover Law: The Race to Protect Managers from Takeovers," NBER Working Papers 7232, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Zsuzsanna Fluck & Colin Mayer, 2005. "Race to the top or bottom? Corporate governance, freedom of reincorporation and competition in law," OFRC Working Papers Series 2005fe07, Oxford Financial Research Centre.
  2. Becht, Marco & Mayer, Colin & Wagner, Hannes F., 2008. "Where do firms incorporate? Deregulation and the cost of entry," Journal of Corporate Finance, Elsevier, Elsevier, vol. 14(3), pages 241-256, June.
  3. Bebchuk, Lucian Arye & Cohen, Alma, 2002. "Firms' Decisions on Where to Incorporate," CEPR Discussion Papers 3514, C.E.P.R. Discussion Papers.
  4. Goergen, M. & Renneboog, L.D.R., 2008. "Contractual Corporate Governance," Discussion Paper, Tilburg University, Center for Economic Research 2008-41, Tilburg University, Center for Economic Research.
  5. Fernando Gomez & Juan Ganuza, 2012. "How to build European private law: an economic analysis of the lawmaking and harmonization dimensions in European private law," European Journal of Law and Economics, Springer, vol. 33(3), pages 481-503, June.
  6. Bebchuk, Lucian A. & Weisbach, Michael S., 2009. "The State of Corporate Governance Research," Working Paper Series 2009-21, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  7. Becht, Marco & Mayer, Colin & Wagner, Hannes, 2006. "Where Do Firms Incorporate?," CEPR Discussion Papers 5875, C.E.P.R. Discussion Papers.
  8. Robert Cooter & Hans Bernd Sch�fer, 2011. "The Secret of Growth Is Financing Secrets: Corporate Law and Growth Economics," Journal of Law and Economics, University of Chicago Press, vol. 54(S4), pages S105 - S123.
  9. Bebchuk, Lucian Arye & Cohen, Alma, 2003. "Firms' Decisions Where to Incorporate," Journal of Law and Economics, University of Chicago Press, vol. 46(2), pages 383-425, October.

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