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What Do Corporate Default Rules and Menus Do? An Empirical Examination

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  • Yair Listokin

Abstract

Much of corporate law consists of nonmandatory statutes. Although scholars have examined the effect of nonbinding corporate law from a theoretical perspective, only inconclusive event studies explore the real‐world impact of these laws. This article empirically examines the impact of nonmandatory state anti‐takeover statutes. Several conclusions emerge. Despite its nonbinding nature, corporate law makes an enormous difference in outcomes, contradicting those who claim that corporate law is trivial. Two types of nonmandatory corporate laws have particularly important effects. Corporate default laws that favor management are considerably less likely to be changed by companies than default laws favoring investors, supporting those who believe that corporate default laws can ameliorate asymmetries in incentives or bargaining power between managers and investors. Corporate “menu” laws—opt‐in laws that are drafted by the state but do not apply as default rules—also facilitate the use of some provisions, supporting those who believe that nonmandatory corporate law reduces transaction costs, such as the cost of updating corporate charters to reflect developments in the economy.

Suggested Citation

  • Yair Listokin, 2009. "What Do Corporate Default Rules and Menus Do? An Empirical Examination," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 6(2), pages 279-308, June.
    • Handle: RePEc:wly:empleg:v:6:y:2009:i:2:p:279-308
    DOI: 10.1111/j.1740-1461.2009.01144.x
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    Cited by:

    1. Lin, Yu-Hsin & Chang, Yun-chien, 2017. "Does mandating cumulative voting weaken controlling shareholders? A difference-in-differences approach," International Review of Law and Economics, Elsevier, vol. 52(C), pages 111-123.
    2. Alexander Stremitzer, 2010. "If you Give Shareholders Power, do they Use it?," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 166(1), pages 58-61, March.
    3. Steven G. Medema, 2020. "The Coase Theorem at Sixty," Journal of Economic Literature, American Economic Association, vol. 58(4), pages 1045-1128, December.
    4. Yair Listokin, 2010. "If you Give Shareholders Power, do they Use it? An Empirical Analysis," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 166(1), pages 38-53, March.
    5. Indranil Goswami & Oleg Urminsky, 2016. "When should the ask be a nudge? The Effect of Default Amounts on Charitable Donations," Natural Field Experiments 00659, The Field Experiments Website.
    6. Gelter, Martin & Siems, Mathias, 2024. "Elective corporate governance: Does board choice matter?," International Review of Law and Economics, Elsevier, vol. 78(C).
    7. Löfgren, Åsa & Martinsson, Peter & Hennlock, Magnus & Sterner, Thomas, 2012. "Are experienced people affected by a pre-set default option—Results from a field experiment," Journal of Environmental Economics and Management, Elsevier, vol. 63(1), pages 66-72.

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