Explaining Delaware's Dominance: Firm Heterogeneity and Demand for Legal Flexibility

This paper investigates why Delaware has become the dominant corporate law jurisdiction in the United States. We argue that Delaware's preeminence lies in its flexible, judge-made standards, which adapt to changing economic conditions and balance managerial discretion with investor protection. Delaware's market share surged from 1980 to 2010, a period marked by merger waves and rising institutional ownership. Using a structural model that incorporates this heterogeneity, we show that demand for legal flexibility, rather than doctrinal clarity, explains Delaware's dominance. Our analysis highlights the value of common-law adaptability and contributes to debates on legal origins and investor protection.