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Company Law and Firm Entry

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  • Prantl, Susanne
  • Böhme, Ulrike

Abstract

In this paper, we study the impact of the entry costs imposed by the German Limited Liability Company Law on firm entry. The law implies an expensive and complex incorporation process. As entrepreneurs choose between legal forms when entering the market, either a legal form with limited liability or without it, we suggest an empirical approach for identifying entry cost effects that takes this decision into account by exploiting the natural experiment in entry regulation following from German reunification. The empirical findings show, in particular, that entry costs based on the German Limited Liability Company Law cause an increase in entry size for limited liability firms. In addition, we report that the entry rate for limited liability firms, as well as the sustained entry rate, is lowered.

Suggested Citation

  • Prantl, Susanne & Böhme, Ulrike, 2013. "Company Law and Firm Entry," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80486, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc13:80486
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    More about this item

    JEL classification:

    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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