Working Paper: CEPR ID: DP5875
Authors: Marco Becht; Colin Mayer; Hannes F. Wagner
Abstract: Over the last few years, a series of rulings by the European Court of Justice (ECJ) has opened up the European Union to cross-border mobility in incorporation. In this paper we explore how deregulation and the costs of regulation have affected the location decisions of firms. Using a newly constructed dataset of companies from around the world incorporating in the U.K. between 1997 and 2005 we find a large increase in new incorporations of limited liability firms from E.U. Member States following the ECJ rulings. We find that incorporation costs, in particular minimum capital requirements, and delays in incorporation are significant influences on firms? location decisions. Our results confirm the relevance of price to firms? choice of legal systems. We also report that cross-border incorporation has prompted regulatory competition between E.U. Member States to provide low-cost corporate law to limited liability companies.
Keywords: entrepreneurship; financial regulation; incorporation; regulatory competition
JEL Codes: G38; K22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| ECJ rulings (F55) | increase in new incorporations of private limited companies in the UK (L26) |
| regulatory costs (L51) | firms' location decisions (R30) |
| incorporation costs (minimum capital requirements and delays) (G32) | firms' location decisions (R30) |
| deregulation (L51) | regulatory competition among EU member states (K20) |