Working Paper: CEPR ID: DP3514
Authors: Lucian Arye Bebchuk; Alma Cohen
Abstract: 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.
Keywords: antitakeover defences; antitakeover statutes; corporate governance; Delaware; home bias; incorporation; managers; regulatory competition; shareholders; takeovers
JEL Codes: G30; G38; H70; K22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Stronger antitakeover protections (G34) | Increased retention of in-state firms (H79) |
| Stronger antitakeover protections (G34) | Increased attraction of out-of-state incorporations (H73) |
| No antitakeover statutes (L49) | Poor retention of firms (G32) |
| Full set of antitakeover statutes (G34) | Increased retention of local firms (R38) |
| Homestate advantage (H73) | Increased likelihood of incorporating in home state (H79) |
| Larger firms (L25) | Decreased likelihood of remaining in-state (H73) |
| Adoption of extreme antitakeover statutes (G34) | No penalty in incorporation market (G39) |