The Financial Value of Corporate Law: Evidence from (Re)incorporations

82 Pages Posted: 6 Nov 2014 Last revised: 10 Nov 2015

See all articles by Martijn Cremers

Martijn Cremers

University of Notre Dame

Simone M. Sepe

University of Arizona - James E. Rogers College of Law; University of Toulouse 1 - Université Toulouse 1 Capitole; IAST - Fondation Jean-Jacques Laffont - TSE; European Corporate Governance Institute (ECGI)

Date Written: November 2015


This paper provides novel evidence concerning the association between firm value and state corporate laws, focusing on (re)incorporations in Delaware. As (re)incorporations are endogenous, we use plausibly exogenous variation in the state of incorporation at the IPO stage from the law firm identity, finding that Delaware incorporation is negatively related to firm value. Consistent with this, firms reincorporating into (out of) Delaware decrease (increase) in firm value in the time-series. These results seem incompatible with a managerial entrenchment explanation of the relationship between state corporate law and firm value, as reincorporations into Delaware are associated with increased takeover activity, suggesting that Delaware is relatively takeover-friendly. Rather, our results appear to be driven by firms where potential conflict of interests between shareholders and other stakeholders are likely to be more severe. This suggests that state corporate laws matters for firm value primarily by addressing the problem of shareholders’ limited commitment to long-term value creation.

Keywords: State corporate law, Delaware, reincorporation, firm value, limited commitment, moral hazard, shareholders, stakeholders

JEL Classification: G34, G38, K22

Suggested Citation

Cremers, K. J. Martijn and Sepe, Simone M., The Financial Value of Corporate Law: Evidence from (Re)incorporations (November 2015). Available at SSRN: or

K. J. Martijn Cremers (Contact Author)

University of Notre Dame ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

Simone M. Sepe

University of Arizona - James E. Rogers College of Law ( email )

P.O. Box 210176
Tucson, AZ 85721-0176
United States

University of Toulouse 1 - Université Toulouse 1 Capitole ( email )

2 Rue du Doyen-Gabriel-Marty
Toulouse, 31042

IAST - Fondation Jean-Jacques Laffont - TSE ( email )

21 allée de Brienne
31015 Toulouse Cedex 6
Toulouse Cedex, F-31042

European Corporate Governance Institute (ECGI) ( email )

B-1050 Brussels

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