Myth or Reality: The Financial Value of Delaware Incorporation

Abstract

We examine the financial value of Delaware incorporation using exogenous shocks to the sources of the Delaware premium (or discount) with regard to three aspects of the legal structure governing corporations: statutory corporate laws, judge-made laws, and the court system. Our results are consistent with a causal relationship from Delaware incorporation to firm value, mainly driven by the judge-made laws and the premier court system. Our results also indicate that the Delaware advantage sourced from the statutory laws has shrunk over the years with the federal intervention of the Sarbanes-Oxley Act and the Dodd-Frank Act.

Keywords: Law, Firm Value, Corporate Governance, Investor Protection

JEL Classification: G30, G32, G34, K22