November 21, 2011
Lawyers, Ignorance, and the Dominance of Delaware Corporate Law
I'm a little late getting to this, but Bill Carney, George Shepherd, and Joanna Shepherd Bailey have posted an interesting draft on SSRN: Lawyers, Ignorance, and the Dominance of Delaware Corporate Law. Here's the abstract:
Why does Delaware continue to dominate the market for incorporations even though recent research has shown that the quality of Delaware corporate law has declined substantially? We focus on the rational ignorance of lawyers and investors. Using the results of our survey of lawyers involved in initial public offerings (IPOs) as well as our analysis of companies involved in IPOs, we conclude that lawyers recommend Delaware because they are ignorant about other states’ law. Because Delaware is so
dominant, law schools focus on Delaware corporate law, and a lawyer rationally learns the corporate law only of Delaware and her home state. Regardless of the quality of the law of other states, lawyers will not recommend it because they are unfamiliar with it. Likewise, lawyers recommend only Delaware law because they believe that investors are ignorant of other states’ law.
November 21, 2011 | Permalink
Is one to conclude, in other words, from all of this that the dominance of Delaware is a self-fulfilling prophecy?
Posted by: W. | Nov 22, 2011 7:23:12 AM
I'm not sure self-fulfilling prophecy is the right term. More like being stuck in a feedback loop. Lawyers and investors prefer Delaware because that's what they're familiar with and they're most familiar with Delaware because that's what most people choose. If Carney, et al, are correct, I agree with them that it's a very tough loop to break out of.
Posted by: Steve Bradford | Nov 22, 2011 11:47:58 AM