Is There a Delaware Effect for Controlled Firms?
62 Pages Posted: 1 Mar 2018 Last revised: 2 Apr 2018
Date Written: March 1, 2018
There is evidence that Delaware incorporated firms are more valuable than their counterparts incorporated elsewhere. Previous interpretations of this phenomenon have focused on Delaware’s hostile takeover law. This Article examines whether the Delaware premium extends to firms for which hostile takeover law is not relevant: firms with a controlling shareholder. I find that Delaware controlled firms are actually slightly less valuable than similar companies incorporated elsewhere. This is surprising. Delaware’s expert judiciary and extensive case law on conflicted transactions are believed to be especially valuable for controlled firms, which should create a Delaware premium. In addition, most models of how controlled firms decide where to incorporate predict that ex-ante higher quality firms choose Delaware, which would also lead to Delaware firms being more valuable. The absence in the data of a Delaware premium for controlled firms suggests, however, that at least one of these beliefs may be incorrect. The Article explores possible explanations and suggests avenues for future research.
Keywords: Controlled Corporations; Delaware Corporate Law; Fiduciary Duties
JEL Classification: K22, G34
Suggested Citation: Suggested Citation