Michal Barzuza

The Market for Corporate Law

This Paper develops a model of the competition among states in providing corporate law rules. The analysis provides a full characterization of the equilibrium in this market. Competition among states is shown to produce optimal rules with respect to issues that do not have a substantial effect on managers’ private benefits but not with respect to issues (such as takeover regulation) that substantially affect these private benefits. We analyse why a dominant state such as Delaware can emerge, the prices that the dominant state will set and the profits it will make. We also analyse the roles played by legal infrastructure, network externalities, and the rules governing incorporations. The results of the model are consistent with, and can explain, existing empirical evidence; they also indicate that the performance of state competition cannot be evaluated on the basis of how incorporation in Delaware in the prevailing market equilibrium affects shareholder wealth.

Short-Termism and Long-Termism

A signi…cant debate in corporate law and …nance concerns the role of activist investors (especially hedge funds) in corporate governance. Activists, it is often alleged, imprudently privilege short term earnings over superior (but less liquid) long term investments. Activists counter that they target managers who unjusti…ably cling to questionable strategies. While this debate is hardly new, it has grown increasingly fractious of late. We analyze the activism debate within a theoretical securities-market setting. In our framework — which draws from an emerging literature in empirical and experimental …� )

Self-Selection and Heterogeneity in Firms’ Choice of Corporate Law

Abstract Firms’ choice of legal regime is not uniform. Despite Delaware’s significant advantages and success in attracting corporations, many firms still choose to incorporate in their home state, and some firms incorporate in a third state, most notably Nevada. Several factors - lawyers’ advice, political influence in the home state, and relative costs of out of state incorporation - were identified as contributing to these patterns. Yet none of these factors neither their combination, fully account for firms’ choices. This Article suggests that unidentified heterogeneity, potentially in managers’ preferences for legal protection, might have contributed to, and could help in explaining, these patterns. Among other factors, this heterogeneity could result, for example, from variations in market forces and, in turn, private benefits that managers extract. Introducing heterogeneity in managers’ preferences, this Article suggests that managers that share a relatively strong preference for insider protection should be less inclined to incorporate in Delaware, and more inclined to incorporate in their home state where they have political clout, or in Nevada if their strong preference for protection is not satisfied in their home state. The analysis is too preliminary for normative implications to be derived, rather the Article suggests that more research into firms’ heterogeneity and their choice of law could prove valuable.