The Demand for Corporate Law: Statutory Flexibility, Judicial Quality, or Takeover Protection?

This article provides an empirical examination of the determinants of firms' decisions where to incorporate. Consistent with our theoretical predictions, we find substantial evidence that firms are more likely to incorporate in states with corporate law rules that offer firms flexibility to devise their governance arrangement and significant but less robust evidence that firms are more likely to incorporate in states with higher quality judicial systems. Unlike prior studies, we find no evidence that firms are more or less likely to incorporate in states with anti-takeover statutes. The latter results are consistent with the hypothesis that anti-takeover statutes have no significant effect on a company's marginal ability to resist takeovers.