Do Delaware CEOs Get Fired?
State University of New York (SUNY) at Binghamton
Adam C. Pritchard
University of Michigan Law School
June 3, 2013
U of Michigan Law & Economics, Olin Working Paper No. 08-024
Critics have charged that state competition in corporate law, which Delaware dominates, leads to a “race to the bottom” making management unaccountable. One metric of management accountability is forced CEO turnover, which we use to test the race to the bottom hypothesis. We compare California firms that choose to incorporate in California – the state with arguably the most restrictive corporate law rules – with those that incorporate in Delaware. We show that aspects of Delaware law attract firms that plan to grow through merger or acquisition and are vulnerable to shareholder lawsuits. We also document differences in corporate governance that correlate with Delaware incorporation. On the ultimate question, we show that firms incorporated in Delaware are no less likely to terminate CEOs in the wake of poor performance. Certain governance measures that correlate with Delaware incorporation increase likelihood of termination. The evidence presented here does not support the race to the bottom hypothesis.
Number of Pages in PDF File: 46
Keywords: Corporate governance, charter competition, CEO turnover
JEL Classification: G30, G34, K22working papers series
Date posted: December 11, 2008 ; Last revised: June 3, 2013
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