Symposium: State Competition for Corporate Headquarters and Corporate Law: An Empirical Analysis

Abstract

Unlike reincorporation decisions, domestic relocations of corporate headquarters have not yet received any attention in the corporate law literature. This lack of interest is unsurprising. Under the so-called “internal affairs doctrine,” a corporation’s internal affairs are governed by the state of incorporation, meaning that the location of a firm’s headquarters is irrelevant to corporate law.

However, this traditional approach has begun to change. In 2018, California became the first state to adopt a gender quota for corporate boards. Importantly, the scope of application of this statute is determined by the location of a corporation’s principal executive offices rather than by its state of incorporation. Several other states are now considering similar legislation.

For corporate law theory and policy, this deviation from the internal affairs rule is nothing less than the potential beginning of a tectonic shift. To the extent that the state of the headquarters governs a corporation’s internal affairs, it is the relocation of a firm’s headquarters rather than a firm’s reincorporation that leads to a change in the applicable corporate law. The result is an entirely new dimension of state competition in corporate law; charter competition will likely remain the dominant factor, but states’ attempts to lure corporate headquarters may now also shape corporate law.

This Article lays the groundwork for a discussion of this new and more complex type of state competition by providing a detailed empirical analysis of firms’ relocation choices. Relying on a dataset spanning twenty-five years (1994-2018), I show that headquarters relocations from one state to another are by no means uncommon. I also present evidence that the legal environment appears to be driving relocation choices at least to some extent. These findings suggest that state competition for corporate headquarters may well begin to have an impact on state corporate law.