| Abstract: | Refining and extending the methodology introduced by Daines(2001), I present evidence that small Delaware firms were worthmore than small non-Delaware firms during the period 1991–1996but not afterwards. I also present evidence that larger firms,which comprise 98% of my sample by size, exhibit no Delawareeffect for any year during the period 1991–2002. Thusthe Delaware effect "disappears" when examined over time andwhen examined for firms that are economically meaningful. Thesenew contours of the Delaware effect suggest that the benefitassociated with Delaware incorporation was an order of magnitudesmaller than estimated by Daines (2001) during the early 1990s,and nonexistent by the late 1990s. The trajectory of the Delawareeffect further suggests that it cannot provide support for the"race to the top" view of regulatory competition, as some commentatorshave argued, and may in fact provide support for the "race tothe bottom" view. Finally, the findings presented here identifytwo puzzles: (1) Why did small Delaware firms exhibit a positiveDelaware effect during the early 1990s but larger firms didnot? (2) Why did this effect disappear in the late 1990s? Iidentify doctrinal changes in Delaware corporate law in themid-1990s, increased managerial incentives to sell during thisperiod, and a cohort selection effect during the 1980s as potentialexplanations. |
