The Law and Economics of Corporate Governance

The Law and Economics of Corporate Governance

Changing Perspectives

Edited by Alessio M. Pacces

In this timely book, the law and economics of corporate governance is approached from various angles. Alessio Pacces shows that perspectives are evolving and that they differ between the economic and the legal standpoint, as well as varying between countries. A group of leading scholars offers their views and provides fresh empirical evidence on existing theories as well as developing new theoretical insights based on empirical puzzles. They all analyse the economics of corporate governance with a view to how it should, or should not, be regulated.

Chapter 1: Delaware Corporate Law: Failing Law, Failing Markets

William J. Carney, George B. Shepherd and Joanna M. Shepherd

Subjects: economics and finance, law and economics, law - academic, corporate law and governance, law and economics


William J. Carney, George B. Shepherd and Joanna M. Shepherd INTRODUCTION For nearly a century Delaware’s corporation law has dominated its market. The explanations given for its dominance have varied over the years, and new ones continue to be offered. At the same time that explanations for success have been offered, some commentators have criticized the quality of Delaware law, and have suggested that it is not ideal, and indeed, may be inferior to some other laws. We offer some additional evidence on this point and explore possible reasons for its continuing success in the wake of a decline in quality. Our study focuses on the role of lawyers as advisers on the choice of the state of incorporation. 1. DELAWARE’S DOMINANCE OF THE CHARTERING COMPETITION Two of us have previously reviewed the history of the competition for corporate chartering business.1 This competition was possible because virtually all American states followed the English choice of law rule, the ‘Internal Affairs Rule’, which applies the law of the incorporating jurisdiction to the governance of the corporation, rather than Europe’s ‘Real Seat Rule’, which required incorporation at the location of the corporation’s real headquarters.2 1 William J. Carney and George B. Shepherd, The Mystery of Delaware Law’s Continuing Success, 2009 U. Ill. L. Rev. 1. Much of the early part of this chapter is drawn from that article. 2 William J. Carney, The Political Economy of Competition for Corporate Charters, 26 J. Legal Stud. 303, 312–15 (1997). 23 24 The law...

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