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A European Nevada? Bad Enforcement As an Edge in State Competition for Incorporations

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  • Andrea Zorzi

    (Department of Economics, University Of Venice CÃ Foscari)

Abstract

Although now possible, no European state is competing for incorporations and this is unlikely to happen in a general fashion. In this paper I argue that, however, the possibility that one state competes for one specific segment of the market for incorporations should not be ruled out altogether. As has happened with Nevada in the U.S., a state could seek to attract companies that are looking for a very protective legal environment for their directors, officers and shareholders. Given the importance of enforcement, I argue that states could compete by capitalising on the inefficiency of their courts, rather than by changing the law on the books. The fact that no investment is necessary would change the perspective on incentives of states to compete: a very small incentive is needed, if the costs are negligible. I also take into account the possible drawbacks of such competition and the reaction other states could have.

Suggested Citation

  • Andrea Zorzi, 2016. "A European Nevada? Bad Enforcement As an Edge in State Competition for Incorporations," Working Papers 2016:12, Department of Economics, University of Venice "Ca' Foscari".
    • Handle: RePEc:ven:wpaper:2016:12
    as

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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Corporate Law; European Union; State competition; Regulatory competition; Delaware; Nevada; Harmonization; Race to the bottom;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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