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Where do firms incorporate? Deregulation and the cost of entry

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  • Marco Becht
  • Colin Mayer
  • Hannes F. Wagner

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

Paper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/13306.

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Date of creation: 2008
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Publication status: Published in: Journal of Corporate Finance (2008) v.14 n° 3,p.241-256
Handle: RePEc:ulb:ulbeco:2013/13306

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References

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  1. Djankov, Simeon & La Porta, Rafael & Shleifer, Andrei & Lopez de Silanes, Florencio, 2001. "The regulation of entry," Policy Research Working Paper Series 2661, The World Bank.
  2. Daines, Robert, 2001. "Does Delaware law improve firm value?," Journal of Financial Economics, Elsevier, vol. 62(3), pages 525-558, December.
  3. Bar-Gill, Oren & Barzuza, Michal & Bebchuk, Lucian Arye, 2002. "The Market for Corporate Law," CEPR Discussion Papers 3553, C.E.P.R. Discussion Papers.
  4. 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.
  5. 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.
  6. Roberta Romano, 1998. "Empowering Investors: A Market Approach to Securities Regulation," Yale School of Management Working Papers ysm74, Yale School of Management.
  7. 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.
  8. Guhan Subramanian, 2004. "The Disappearing Delaware Effect," Journal of Law, Economics and Organization, Oxford University Press, vol. 20(1), pages 32-59, April.
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Cited by:
  1. Goergen, Marc & Renneboog, Luc, 2008. "Contractual corporate governance," Journal of Corporate Finance, Elsevier, vol. 14(3), pages 166-182, June.
  2. 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.
  3. 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.
  4. 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.
  5. Djankov, Simeon, 2008. "The Regulation of Entry: A Survey," CEPR Discussion Papers 7080, C.E.P.R. Discussion Papers.
  6. 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.

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