What Do Corporate Default Rules and Menus Do? An Empirical Examination

Much of corporate law consists of non-mandatory statutes. While scholars have examined the effect of non-binding corporate law from a theoretical perspective, almost no studies explore the real-world impact of these laws. This paper empirically examines the impact of non-mandatory state antitakeover statutes. Several conclusions emerge. Despite its non-binding nature, corporate law makes an enormous difference in outcomes, contradicting those who claim that corporate law is trivial. Two types of non-mandatory corporate laws have particularly important effects. Corporate default laws that favor management are considerably less likely to be changed by companies than default laws favoring investors, supporting those who believe that corporate default laws can ameliorate asymmetries in incentives or bargaining power between managers and investors. Corporate menu laws - opt-in laws that are drafted by the state but do not apply as default rules - also facilitate the use of some provisions, supporting those who believe that non-mandatory corporate law reduces transaction costs, such as the cost of updating corporate charters to reflect developments in the economy