Ofer Eldar is a doctoral candidate at the Yale School of Management. This post is based on an article authored by Mr. Eldar and Lorenzo Magnolfi, a doctoral candidate at Yale Economics Department. This post is part of the Delaware law series; links to other posts in the series are available here.
There is a longstanding debate in corporate law and governance over the merit of competition for corporate laws. “Race to the top” scholars point to the fact that Delaware, the state where most public firms are incorporated, has laws that are highly responsive to business and has been a laggard in enacting anti-takeover statutes. Proponents of the “race to the bottom” have shown that firms are more likely to incorporate in their home state when that state has adopted more anti-takeover statutes. More recently, they have highlighted the recent rise of firm incorporations in Nevada, following a 2001 Nevada law, which exempts managers from liability for breaching their fiduciary duties. Finally, skeptics of competition argue that it is impossible for states to compete with Delaware by simply replicating its laws, and that relatively few firms reincorporate from one state to another.