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Firms’ Decisions Where to Incorporate*

Harvard Law SchoolNational Bureau of Economic Research

This paper empirically investigates the determinants of firms’ decisions where to incorporate. We find that states that offer stronger antitakeover protections are substantially more successful both in retaining in‐state firms and in attracting out‐of‐state incorporations. We estimate that, compared with adopting no antitakeover statutes, adopting all standard antitakeover statutes enabled the adopting states to more than double the percentage of local firms that incorporated in state (from 23 to 49 percent). Indeed, we find no evidence that the incorporation market has even penalized the three states that passed antitakeover statutes, which are widely viewed as detrimental to shareholders. We also find that there is commonly a big difference between a state’s ability to attract incorporations from firms located in and out of the state, and we investigate several possible explanations for this home‐state advantage.