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The Direct Effect of Corporate Law on Entrepreneurship

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  • Guzman, Jorge

Abstract

From 1946 to 1983, U.S. states modernized their corporate law by adopting the Model Business Corporation Act (MBCA), a compendium of legal best practices. Better corporate law increased entrepreneurship. After the adoption of the MBCA, the number of new local corporations increased by 26% on average, half of which was substitution from other firm types, and the rest was net-new firms. States that only partially adopted saw no benefit, and the largest increases were concentrated in regions with ex-ante lower quality law. At the individual level, people in states adopting the MBCA also report higher self-employment levels, but no higher wage employment or labor force participation. Consistent with the MBCA increasing efficiency and decreasing regulatory capture, the effect was larger for women, black, and those located outside the central city.

Suggested Citation

  • Guzman, Jorge, 2020. "The Direct Effect of Corporate Law on Entrepreneurship," SocArXiv 967ph_v1, Center for Open Science.
    • Handle: RePEc:osf:socarx:967ph_v1
    DOI: 10.31219/osf.io/967ph_v1
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