ABSTRACT
Under the doctrine of piercing the corporate veil, a court may invalidate limited liability protection and hold parent companies liable for a subsidiary’s debt within a corporate group. This paper develops a model of corporate veil piercing. A court chooses a piercing rate to specify how often the court pierces a corporate veil. A corporate group chooses the length of an ownership chain to specify how many veils the group builds into the chain. The comparative statics of the Nash equilibrium with respect to the bargaining weight predict a hump-shaped relationship between piercing rate and ownership length, consistent with empirical evidence. When courts raise piercing rates from 0.26, as in Maryland, to 0.50, as in New York, corporate groups appear to increase the mean length of ownership chains by 0.56. When courts raise piercing rates from 0.50 to 0.68, as in Tennessee, corporate groups decrease the mean length by 0.51.
Hong, Sunghoon, Piercing Complex Corporate Veils: Theory and Evidence. Posted to SSRN 31 May 2025.
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