Thursday, September 10, 2009
Steven Davidoff - The Deal Professor - has a new paper with Matthew Cain in which they evaluate the selection of choice of law provisions in merger agreements and find that Delaware dominates: Delaware's Competitive Reach (SSRN).
Abstract: We evaluate the selection of governing law and forum clauses in merger agreements between public firms from 2004-2008. In contrast to prior research, we find that Delaware is the dominant choice among merging parties. During the sample period approximately 66.4% of agreements select Delaware for their governing law and 60% of agreements select Delaware as their choice of forum. This compares to 61.8% of targets during this time that are incorporated in Delaware, and 54.8% of acquirers that are similarly incorporated. Delaware’s attractiveness has increased in recent years in response to exogenous events, and is evidenced by the fact that top-tier legal advisors, foreign acquirers, transactions surrounded by greater financial uncertainty, and larger transactions tend to select Delaware’s forum over other venues. Results are robust to controls for simultaneity and endogeneity. Our results provide support for the theory that Delaware competes by providing quality governing law, and particularly, adjudicative services. They also highlight the contestability of Delaware’s dominance; parties adjust their choices of law and forum during our sample time period in response to legal and other events. We conclude that Delaware competes strongly in other legal products beyond its primary one, the public company charter.