The John M. Olin Center

Paper Abstract

1. Gordon Moodie, Forty Years of Charter Competition: A Race to Protect Directors from Liability, 09/2004

Abstract: This paper examines whether changes in director liability statutes can be linked to changes in a state’s popularity as a site of corporate domicile. Using a new database of NYSE reincorporations over the past forty years, it finds such a link exists. Delaware surged ahead in the corporate charter market when it liberalized its director liability statute in 1967 and 1986. And states that imitated Delaware rapidly kept the highest share of their NYSE firms from reincorporating in Delaware. This shows that states “defensively compete” to prevent a corporate exodus to Delaware, even if they know they cannot overtake Delaware. It also shows that director liability statutes are an important consideration for corporations when choosing a state of domicile. Taken together with evidence that corporations are drawn to states with antitakeover statutes, this supports a view that states with a managerial focus do better in the market for corporate charters.

1: PDF