Abstract

Firms’ choice of legal regime is not uniform. Despite Delaware’s significant advantages and success in attracting corporations, many firms still choose to incorporate in their home state, and some firms incorporate in a third state, most notably Nevada. Several factors - lawyers’ advice, political influence in the home state, and relative costs of out of state incorporation - were identified as contributing to these patterns. Yet none of these factors neither their combination, fully account for firms’ choices. This Article suggests that unidentified heterogeneity, potentially in managers’ preferences for legal protection, might have contributed to, and could help in explaining, these patterns. Among other factors, this heterogeneity could result, for example, from variations in market forces and, in turn, private benefits that managers extract. Introducing heterogeneity in managers’ preferences, this Article suggests that managers that share a relatively strong preference for insider protection should be less inclined to incorporate in Delaware, and more inclined to incorporate in their home state where they have political clout, or in Nevada if their strong preference for protection is not satisfied in their home state. The analysis is too preliminary for normative implications to be derived, rather the Article suggests that more research into firms’ heterogeneity and their choice of law could prove valuable.