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Firms' Decisions on Where to Incorporate

  • Bebchuk, Lucian Arye
  • Cohen, Alma

This Paper empirically investigates the decisions of US publicly traded firms on where to incorporate. We study the features of states that make them attractive to incorporating firms and the characteristics of firms that determine whether they incorporate in or out of their state of location. We find that states that offer stronger antitakeover protections are substantially more successful both in retaining in-state firms and in attracting out-of-state incorporations. We estimate that, compared with adopting no antitakeover statutes, adopting all standard antitakeover statutes enabled the states that adopted them to more than double the percentage of local firms that incorporated in-state (from 23% to 49%). Indeed, the incorporation market has not even penalized the three states that passed two extreme antitakeover statutes that have been widely viewed as detrimental to shareholders. We also find that there is commonly a big difference between a state's ability to attract incorporations from firms located in and out of the state, and we investigate several possible explanations for this home-state advantage. Finally, we find that Delaware's dominance is greater than has been recognized and can be expected to increase further in the future. Our findings have significant implications for corporate governance, regulatory competition, and takeover law.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3514.

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Date of creation: Aug 2002
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Handle: RePEc:cpr:ceprdp:3514
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  1. Karpoff, Jonathan M. & Malatesta, Paul H., 1989. "The wealth effects of second-generation state takeover legislation," Journal of Financial Economics, Elsevier, vol. 25(2), pages 291-322, December.
  2. Bertrand, M. & Mullainathan, S., 1998. "Is there Discretion in Wage Setting? A Test Using Takeover Legislation," Papers 203, Princeton, Woodrow Wilson School - Public and International Affairs.
  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. Roberta Romano, 2001. "The Need for Competition in International Securities Regulation," Yale School of Management Working Papers ysm214, Yale School of Management, revised 01 Sep 2001.
  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. Szewczyk, Samuel H. & Tsetsekos, George P., 1992. "State intervention in the market for corporate control : The case of Pennsylvania Senate Bill 1310," Journal of Financial Economics, Elsevier, vol. 31(1), pages 3-23.
  7. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
  8. 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.
  9. 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.
  10. Marianne Bertrand & Sendhil Mullainathan, 1998. "Executive Compensation and Incentives: The Impact of Takeover Legislation," Working Papers 783, Princeton University, Department of Economics, Industrial Relations Section..
  11. Cumming, Douglas J. & MacIntosh, Jeffrey G., 2000. "The role of interjurisdictional competition in shaping Canadian corporate law," International Review of Law and Economics, Elsevier, vol. 20(2), pages 141-186, June.
  12. 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.
  13. Roberta Romano & Sanjai Bhagat, 2001. "Event Studies and the Law: Part II - Empirical Studies of Corporate Law," Yale School of Management Working Papers ysm183, Yale School of Management.
  14. Roberta Romano, 1998. "Empowering Investors: A Market Approach to Securities Regulation," Yale School of Management Working Papers ysm74, Yale School of Management.
  15. Heron, Randall A. & Lewellen, Wilbur G., 1998. "An Empirical Analysis of the Reincorporation Decision," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(04), pages 549-568, December.
  16. Daines, Robert, 2001. "Does Delaware law improve firm value?," Journal of Financial Economics, Elsevier, vol. 62(3), pages 525-558, December.
  17. Cumming, Douglas J. & MacIntosh, Jeffrey G., 2002. "The rationales underlying reincorporation and implications for Canadian corporations," International Review of Law and Economics, Elsevier, vol. 22(3), pages 277-330, September.
  18. 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.
  19. 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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