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The Political Economy of Competition for Corporate Charters

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  • Carney, William J
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    Abstract

    This article explores the forces that drive the creation of corporate law. Costly rent extractions in corporate laws by interest groups, beyond those attainable through market transactions, raise costs for firms and lower returns for shareholders. Such gains for interest groups can survive only if local firms subject to such law are protected from firms operating under more efficient legal regimes. Competitive forces from outside a legal system weaken the power of interest groups to engage in rent-seeking activities and cause the resulting laws to be more public-regarding. The competitive difference between Europe and the United States is accounted for by the choice of an overarching legal rule for the United States-the presence of a common market, with its absence of tariffs, that makes exit from costly legal regimes by U.S. firms possible. These different competitive settings explain substantive differences in corporate laws. Copyright 1997 by the University of Chicago.

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    Bibliographic Info

    Article provided by University of Chicago Press in its journal Journal of Legal Studies.

    Volume (Year): 26 (1997)
    Issue (Month): 1 (January)
    Pages: 303-29

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    Handle: RePEc:ucp:jlstud:v:26:y:1997:i:1:p:303-29

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    Web page: http://www.journals.uchicago.edu/JLS/

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    Cited by:
    1. Kirstein, Roland & Schmidtchen, Dieter & Neunzig, Alexander R., 2004. "Conflict of law rules and international trade : a transaction costs approach," CSLE Discussion Paper Series 2004-01, Saarland University, CSLE - Center for the Study of Law and Economics.
    2. Francisco Garcimartín Alférez, 1999. "Regulatory Competition: A Private International Law Approach," European Journal of Law and Economics, Springer, vol. 8(3), pages 251-270, November.
    3. Klaus Heine & Wolfgang Kerber, 2002. "European Corporate Laws, Regulatory Competition and Path Dependence," European Journal of Law and Economics, Springer, vol. 13(1), pages 47-71, January.
    4. Joseph A. McCAHERY & Erik P.M. VERMEULEN & HISATAKE Masato & SAITO Jun, 2007. "Traditional and Innovative Approaches to Legal Reform: 'The New Company Law'," Discussion papers 07033, Research Institute of Economy, Trade and Industry (RIETI).
    5. Roberta Romano, 2005. "Is Regulatory Competition a Problem or Irrelevant for Corporate Governance?," Yale School of Management Working Papers amz2601, Yale School of Management, revised 01 Jan 2006.

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