Vanderbilt Law Review

First Page



A leading question in American corporate law is why such a large percentage of large firms choose Delaware as their state of incorporation. An early view saw Delaware as leading a "race to the bottom" by providing charter terms that favored corporate managers at the expense of shareholders and the public at large. Later theorists postulated that Delaware might rather be providing terms that benefited all parties to the corporate contract ex ante-the "race to the top" view. Some have suggested that Delaware incorporation may represent neither a race to the top nor to the bottom, but rather a race to somewhere in the middle, because the interests of corporate managers and other influential parties align only partially with the interests of the public. More recently, the notion of beneficial competition among the states for corporate charters has been challenged on the grounds either that state competition may not produce value-increasing rules; that Delaware's dominance is so great that effective competition does not exist, at least with any state other than the firm's principal place of business; or that the most salient competition is not between states but rather between states and the federal government. Others have examined the role of attorneys in the process, arguing that the self-interest of transactional attorneys influences the selection of Delaware as a chartering state, as well as the nature of the contractual clauses that are included in the charters. Studies also have used empirical methods to investigate the advantages of Delaware incorporation, with some finding advantages to incorporating in Delaware and others casting doubt on the robustness of these results.