Jurisdictional Competition for Corporate Charters and Firm Value: A Reexamination of the Delaware Effect

International Journal of Disclosure and Governance, Forthcoming

Posted: 30 Sep 2017 Last revised: 6 Oct 2017

See all articles by Anne M. Anderson

Anne M. Anderson

Middle Tennessee State

Jill A. Brown

Bentley University

Parveen P. Gupta

Lehigh University - Department of Accounting

Date Written: September 28, 2017

Abstract

In this paper, we analyze the Delaware incorporation effect on firm value to determine if the positive association found by Daines (2001) still holds. Analyzing a sample from 1997 to 2013, we find that the relationship between Delaware incorporation and firm value is no longer positive, as found by Daines, and is in fact negative and significantly different from zero. In addition, we find that this negative relationship holds even after controlling for the effects of Sarbanes Oxley, the Financial Crisis, and foreign incorporations. We attribute this change to increasing charter competition, both within and outside of the United States. However, in line with current governance trends, we propose that Delaware's popularity may be rooted in director primacy arguments that support Delaware as a state where directors perceive they have autonomy and discretion through the Chancery Court system.

Keywords: Delaware Incorporation, Firm Value, Jurisdictional Competition

JEL Classification: G30, K20, L25

Suggested Citation

Anderson, Anne M. and Brown, Jill A. and Gupta, Parveen P., Jurisdictional Competition for Corporate Charters and Firm Value: A Reexamination of the Delaware Effect (September 28, 2017). International Journal of Disclosure and Governance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3044732

Anne M. Anderson

Middle Tennessee State ( email )

TN
United States

Jill A. Brown

Bentley University ( email )

175 Forest St
Waltham, MA 02452
United States

HOME PAGE: http://https://faculty.bentley.edu/details.asp?uname=jbrown

Parveen P. Gupta (Contact Author)

Lehigh University - Department of Accounting ( email )

621 Taylor Street
RBC #37
Bethlehem, PA 18015
United States
610-758-3443 (Phone)
610-758-5992 (Fax)

HOME PAGE: http://www.lehigh.edu

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