What Happens in Nevada? Self-Selecting into a Lax Law
Publisher
Review of Financial Studies
Date
2014
We find that Nevada, the second most popular state for out-of-state incorporations and a state with lax corporate law, attracts firms that are 30–40% more likely to report financial results that later require restatement than firms incorporated in other states, including Delaware. Our results suggest that firms favoring protections for insiders select Nevada as a corporate home, and these firms are prone to financial reporting failures. We provide some evidence that Nevada law also has a causal impact by increasing a Nevada firm's propensity to misreport financials after the firm has incorporated in Nevada.
Citation
Michal Barzuza & David C. Smith, What Happens in Nevada? Self-Selecting into a Lax Law, 27 Review of Financial Studies 3593–3627 (2014).