The Direct Effect of Corporate Law on Entrepreneurship

Abstract

I study how corporate law affects entrepreneurship by focusing on the experience of U.S. states who updated their corporate code to the Model Business Corporation Act (MBCA), a compendium of legal best practices. States adopting the MBCA saw the number of new local corporations increase by 26%, on average. About half of this was substitution from other firm types, and the rest was net new firms. States that only partially adopted the MBCA saw no benefit, and the largest increases are concentrated in regions with ex-ante lower quality law.