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Where Do Firms Incorporate?

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

Abstract

Over the last few years, a series of rulings by the European Court of Justice (ECJ) has opened up the European Union to cross-border mobility in incorporation. In this paper we explore how deregulation and the costs of regulation have affected the location decisions of firms. Using a newly constructed dataset of companies from around the world incorporating in the U.K. between 1997 and 2005 we find a large increase in new incorporations of limited liability firms from E.U. Member States following the ECJ rulings. We find that incorporation costs, in particular minimum capital requirements, and delays in incorporation are significant influences on firms’ location decisions. Our results confirm the relevance of price to firms’ choice of legal systems. We also report that cross-border incorporation has prompted regulatory competition between E.U. Member States to provide low-cost corporate law to limited liability companies.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5875.

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Date of creation: Oct 2006
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Handle: RePEc:cpr:ceprdp:5875

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Keywords: entrepreneurship; financial regulation; incorporation; regulatory competition;

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References

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  1. Bar-Gill, Oren & Barzuza, Michal & Bebchuk, Lucian Arye, 2002. "The Market for Corporate Law," CEPR Discussion Papers 3553, C.E.P.R. Discussion Papers.
  2. 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.
  3. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andre Shleifer, 2000. "The Regulation of Entry," Harvard Institute of Economic Research Working Papers 1904, Harvard - Institute of Economic Research.
  4. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-in-Differences Estimates?," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 249-275, February.
  5. Marianne Bertrand & Francis Kramarz, 2002. "Does Entry Regulation Hinder Job Creation? Evidence From The French Retail Industry," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1369-1413, November.
  6. Nicoletti, Giuseppe & Scarpetta, Stefano, 2003. "Regulation, productivity, and growth : OECD evidence," Policy Research Working Paper Series 2944, The World Bank.
  7. Bruce D. Meyer, 1994. "Natural and Quasi- Experiments in Economics," NBER Technical Working Papers 0170, National Bureau of Economic Research, Inc.
  8. Roberta Romano, 1998. "Empowering Investors: A Market Approach to Securities Regulation," Yale School of Management Working Papers ysm74, Yale School of Management.
  9. Samuel Kortum & Josh Lerner, 1998. "Does Venture Capital Spur Innovation?," NBER Working Papers 6846, National Bureau of Economic Research, Inc.
  10. Daines, Robert, 2001. "Does Delaware law improve firm value?," Journal of Financial Economics, Elsevier, vol. 62(3), pages 525-558, December.
  11. 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.
  12. Guhan Subramanian, 2004. "The Disappearing Delaware Effect," Journal of Law, Economics and Organization, Oxford University Press, vol. 20(1), pages 32-59, April.
  13. 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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Cited by:
  1. Simon Deakin, 2008. "Regulatory Competition in Europe after Laval," ESRC Centre for Business Research - Working Papers wp364, ESRC Centre for Business Research.
  2. Djankov, Simeon, 2008. "The Regulation of Entry: A Survey," CEPR Discussion Papers 7080, C.E.P.R. Discussion Papers.

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