Professor Steven Davidoff highlights here, a paper he co-authored with Matthew Cain of the Notre Dame Mendoza College of Business, in a post on the Harvard Law School Forum on Corporate Governance and Financial Regulation. Their publication analyzes the selection of governing law and forum clauses in merger agreements between public firms from 2004-2008.
An excerpt from an overview of their analysis follows:
In contrast to prior research, we find that Delaware is the dominant choice among merging parties. During the sample period approximately 66.4% of agreements select Delaware for their governing law and 60% of agreements select Delaware as their choice of forum. This compares to 61.8% of targets during this time that are incorporated in Delaware, and 54.8% of acquirers that are similarly incorporated.
We find that Delaware’s attractiveness has increased in recent years in response to exogenous events, namely the financial crisis and the Second Circuit’s decision in Consolidated Edison, Inc. v. Northeast Utilities. The latter court ruling was perceived by practitioners as creating an unfriendly merger precedent under New York law. We find that the opinion made the Delaware forum a more attractive one vis-à-vis New York.
Delaware’s attractiveness is also evidenced by the fact that top-tier legal advisors, foreign acquirers, transactions surrounded by greater financial uncertainty, and larger transactions tend to select Delaware’s forum over other venues. Our results are robust to controls for simultaneity and endogeneity.
Our results also provide support for the theory that Delaware competes by providing quality governing law, and particularly, adjudicative services. They also highlight the contestability of Delaware’s dominance; parties adjust their choices of law and forum during our sample time period in response to legal and other events