Dividend Policy, Shareholder Rights, and Corporate Governance

In this paper, we analyze the Delaware incorporation effect on firm value to determine whether the positive association found by Daines (J Financ Econ 62(3):525–558, 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 US. 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.

Jurisdictional competition for corporate charters and firm value: a reexamination of the Delaware effect

Motivated by agency theory, this study attempts to ascertain whether chief executive compensation is influenced by legal rules. In particular, we analyze whether Delaware law has an impact on CEO pay. Legal rules have been argued to impact agency conflicts. Agency costs, in turn, affect CEO compensation. Thus, we contend that Delaware law influences CEO pay through their associations with agency problems. The empirical evidence corroborates this hypothesis, showing that Delaware firms pay their CEOs significantly more generously than do non-Delaware firms (about 36% higher in total compensation). Furthermore, Delaware firms exhibit significantly lower pay-performance sensitivity (almost 50% lower), implying that the higher pay more likely reflects rent expropriation rather than shareholder wealth maximization.

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Does Delaware Incorporation Affect Executive Compensation? An Empirical Analysis

Motivated by agency theory, this study attempts to ascertain whether chief executive compensation is influenced by legal rules. In particular, we analyze whether Delaware law has an impact on CEO pay. Legal rules have been argued to impact agency conflicts. Agency costs, in turn, affect CEO compensation. Thus, we contend that Delaware law influences CEO pay through their associations with agency problems. The empirical evidence corroborates this hypothesis, showing that Delaware firms pay their CEOs significantly more generously than do non-Delaware firms (about 36% higher in total compensation). Furthermore, Delaware firms exhibit significantly lower pay-performance sensitivity (almost 50% lower), implying that the higher pay more likely reflects rent expropriation rather than shareholder wealth maximization. JEL Classifications: G34, G38

Jullavut Kittiakarasakun

Papers

Does Delaware Incorporation Affect Executive Compensation? An Empirical Analysis

Does delaware incorporation affect executive compensation? an empirical analysis