NBER Working Papers and Publications

In the ongoing debate on state competition over corporate charters, supporters of state competition have long claimed that the empirical evidence clearly supports their view.  This paper suggests that the body of empirical evidence on which supporters of state competition have relied does not warrant this claim.  The paper first demonstrates that reported findings of a positive correlation between incorporation in Delaware and increased shareholder wealth are not robust and, furthermore, do not establish causation.  The paper then shows that, even if Delaware incorporation were found to cause an increase in shareholder value, this finding would not imply that state competition is working well; benefits to incorporating in the dominant state would likely exist in a race-toward-the bottom' equ...

The development of U.S. state takeover law in the past three decades has produced considerable and quite possibly excessive protection for incumbent managers from hostile takeovers.  Although the shortcomings of state takeover law have been widely recognized, there has been little support for federal intervention because of the concern that such intervention might produce even worse takeover arrangements.  This paper puts forward a novel form of federal intervention in the regulation of takeovers that would address these shortcomings without raising such a concern.  Rather than mandating particular substantive takeover arrangements, this form of federal intervention would focus on increasing shareholder choice.  Choice-enhancing' federal intervention would consist of two elements: (i) an op...

This paper analyzes certain important shortcomings of state competition in corporate law.  In particular, we show, with respect to takeovers, states have incentives to produce rules that excessively protect incumbent managers.  The development of state takeover law, we argue, is consistent with our theory.  States have adopted antitakeover statutes that have little policy basis, and, more importantly, they have provided managers with a wider and more open-ended latitude to engage in defensive tactics than endorsed even by the commentators most favorable to such tactics.  Furthermore, states have elected, even though they could have done otherwise, to impose antitakeover protections on shareholders, who did not appear to favor them, in a way that left shareholders with little choice or say. ...