U.S. State Chartering Competition: Evidence of Director Primacy in Corporate Governance?

Utilizing concepts from agency theory as well as director and shareholder primacy models, this study examines U.S. state chartering competition and the debate about whether Delaware incorporation provides additional firm value for shareholders. In a longitudinal study of firms with data from 1996-2013, we found that on the surface, in line with shareholder primacy goals, Delaware incorporated firms appear to have less debt, and a higher Tobin's Q than similar firms in other states, suggesting that they are managed well for shareholder returns and supporting race to the top arguments. However, when taking into account fixed effects, and expanding the sample to include those companies that are publicly traded in the U.S. but incorporated overseas, the effect of Delaware incorporation is negligible to shareholder wealth. Foreign incorporated firms provide significantly more value for shareholders over longer periods of time than do Delaware corporations. This suggests that the popularity of Delaware incorporation may be more firmly rooted in director primacy goals that offer the corporate friendly legal domain of Delaware, rather than simply shareholder value. [ABSTRACT FROM AUTHOR]