Introduction

Corporate mobility has reached a certain level of maturity in Europe. The EU legal framework is established and well understood, and it rests largely on case-law from the European Court of Justice. Beginning with the seminal Centros decision, the Court has effectively opened the borders between EU Member States little by little, and entrepreneurs now de facto have the right to select the foreign corporate law that governs the legal form of their company, at least at the company formation stage. Moreover, researchers have begun to empirically study how the case-law has impacted the market and how the market has reacted. While much effort has been spent evaluating the early market reactions, following the partial market opening made possible by Centros, relatively little attention has been devoted to subsequent developments. This is surprising because the various lawmakers’ responses to the wave of entrepreneurial migration offer a rare glimpse at the effects of regulatory competition and subsequent business’ reaction, as well as providing insights into the relevance and effects of lawmaking and regulatory responses to market pressure.

This paper explores the responses by European businesses to the (limited) occurrences of regulatory competition flowing out of Centros and subsequent caselaw. It uses new empirical data on Germany, the most prominent example of a country that was under pressure from regulatory competition. The paper confirms earlier findings that entrepreneurs in continental Europe, at first, increasingly used English letterbox companies to govern their affairs, without doing any business in the UK. The present analysis goes further, however, and shows that incorporation numbers have dropped considerably since 2006, falling to remarkably low numbers today. I then go on to evaluate the role that regulatory reform may have played in this development. Many lawmakers in continental European jurisdictions claim ‘success’ in the sense that the legal reforms of domestic company laws have caused foreign (English) corporations to fall out of vogue with their respective entrepreneurs as these entrepreneurs have begun to increasingly use domestic company types. The data evaluated in this study seem to weaken this claim: first, I show that the number of foreign incorporations in Germany has dropped even before the law reform came into force.