Empirical Study Redux on Choice of Law and Forum in M&A: The Data and Its Limits

Abstract

The legal community has long recognized that business corporations heavily favor Delaware as the state of incorporation. However, a recent study of merger agreements from 2002 by Eisenberg and Miller suggested that despite Delaware’s prominence as the place of incorporation, companies “flee” from Delaware with respect to both choice of law and forum, and instead prefer New York. We set out to study data from 343 merger and acquisitions contracted on between January 1, 2011 and June 30, 2011 in an attempt to verify this conjecture. Our study is important for two reasons. First, the 2011 data set show that the Eisenberg and Miller conjecture is not valid. Specifically, we find that the state of incorporation has no effect on the choice of law for the state of New York, thus negating the earlier finding that Delaware corporations flee to New York law. The choice of forum being New York or some other forum is the major factor in our model as it alone explains about 50% of the variation in the choice of law for the state of New York. Thus, Eisenberg and Miller may have identified a transient phenomenon. Second, the article also makes a contribution to the debate about how much raw data can contribute to an understanding of a phenomenon such as the choice of law without further context such as a survey of the lawyers drafting the merger agreements.