The Direct Effect of Corporate Law on Entrepreneurship

When: 01 Mar 2021, 14:15-15:30
Where: Zoom
Speaker: Jorge Guzman

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Meeting ID: 997 8623 1572
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This paper estimates the impact of adopting the Model Business Corporation Act, a compendium of legal best practices, on U.S. state-level entrepreneurship. States adopted new corporate law endogenously, with legal changes being preceded by economic booms. Using foreign firm entry allows controlling for this endogeneity. Difference-in-differences estimates show better law increased the rate of new local corporations by 26% per year. Four tenths of the new corporations are substitutions from other firm types, and the rest are net new firms. Southern and Western states benefited more, and states that only partially adopted the MBCA saw no benefit.