Vigorous Race or Leisurely Walk: Reconsidering the Competition over Corporate Charters

Abstract

The long-standing and central debate on state competition in corporate law has been largely premised on a widely held belief that, whether the is toward the top or the bottom, states vigorously race in seeking to attract incorporations. In this paper, we argue that this belief is in fact incorrect and that the competitive threat to Delaware's dominant position in the incorporation market is quite weak. We discuss evidence that Delaware's position in this market is far more dominant and secure than has been previously recognized. We then analyze the structural features of the incorporation market that can explain this state of affairs. The weak-competition account that we put forward casts substantial doubt on the extent to which state competition can be relied on - even on the most favorable view of it - to produce optimal corporate rules. This account strengthens the case for some form of federal intervention; at the minimum, it would be desirable for federal law to invigorate competition by permitting shareholders to initiate and approve reincorporations and by providing a federal incorporation option.