The Direct Effect of Corporate Law on Entrepreneurship.

This article empirically examines the impact of the Model Business Corporation Act (MBCA), a prototype corporate law developed by the American Bar Association, on regional entrepreneurship in the United States from 1946 to 1983. It finds that states fully adopting the MBCA experienced an average 26% increase in new local corporation formations, with about half representing net new firms and the rest substitutions from other firm types; partial or poor adoptions showed no effect. The positive effects were more pronounced in states with less developed legal institutions, particularly in the Western and Southern regions, and among women, Black individuals, and those outside central cities, suggesting the MBCA reduced regulatory capture and uncertainty. The study uses state-level business registration data and individual labor data from the Current Population Survey, controlling for local economic conditions and political factors, and confirms robustness through multiple tests including instrumental variables and placebo analyses. These findings highlight the role of well-designed corporate law in fostering entrepreneurship and economic development.