106 Iowa L. Rev. 1683 (2021)

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Abstract

For about a hundred years, Delaware has been the leading jurisdiction for corporate law in the United States. The state, which deliberately embarked on a mission to build a haven for corporate law in the early twentieth century, now supplies corporate charters to over two thirds of Fortune 500 companies and a growing share of closely held companies. But Delaware’s domestic dominance masks the important and yet underexamined issue of whether Delaware maintains its competitive edge globally.

This Article examines Delaware’s global competitiveness, documenting Delaware’s surprising weakness competing in the emerging international market for corporate charters. It does so principally by studying the corporate law preferences of foreign firms listed in the United States. While Delaware was once a popular jurisdiction for foreign corporations listing in American stock markets, it has dramatically fallen out of favor in recent years. This is particularly true among firms based in China that have recently made their debut to American investors. For instance, the Cayman Islands is now the juridical home to over half of Chinese companies listed in American stock markets, compared to Delaware’s 5%.

By exploring the paradox of Delaware’s domestic popularity and international unpopularity, this Article makes three contributions to the literature. First, it presents data indicating that Delaware’s dominance of the corporate charter market may be a parochial, American phenomenon. Second, it develops a theory to explicate why foreign firms operating within vastly different market environments may be averse to Delaware’s corporate governance paradigm. Finally, it adds to the corporate law convergence debate, counseling against blind exporting of Delaware corporate law to foreign nations.