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Where Do Firms Incorporate? Deregulation and the Cost of Entry

  • Colin Mayer
  • Marco Becht

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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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 2008fe04.

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Date of creation: 01 Jan 2008
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Handle: RePEc:oxf:wpaper:2008fe04
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Web page: http://www.economics.ox.ac.uk/
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  1. Simeon Djankov & Rafael La Porta & Florencio LopezdeSilanes & Andrei Shleifer, 2000. "The Regulation of Entry," NBER Working Papers 7892, National Bureau of Economic Research, Inc.
  2. 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.
  3. 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.
  4. Oren Bar-Gill & Michal Barzuza & Lucian Bebchuk, 2006. "The Market for Corporate Law," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 162(1), pages 134-160, March.
  5. Roberta Romano, 1998. "Empowering Investors: A Market Approach to Securities Regulation," Yale School of Management Working Papers ysm74, Yale School of Management.
  6. Daines, Robert, 2001. "Does Delaware law improve firm value?," Journal of Financial Economics, Elsevier, vol. 62(3), pages 525-558, December.
  7. Guhan Subramanian, 2004. "The Disappearing Delaware Effect," Journal of Law, Economics and Organization, Oxford University Press, vol. 20(1), pages 32-59, April.
  8. 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.
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