Does Delaware incorporation improve shareholder value? Evidence from Trump's surprise victory

초록

We examine whether Delaware incorporation enhances shareholder value, leveraging the historic and wholly unexpected election of Donald Trump in 2016 as a natural experiment that sharply minimizes endogeneity concerns. This unique research design allows for a cleaner identification of the causal effect of Delaware law. We find that Delaware-incorporated firms experienced significantly more positive stock market reactions to Trump's surprise victory, providing strong support for the 'race to the top' hypothesis that attributes a value premium to Delaware law. This effect translates to an average gain of $6.14millionperDelaware-incorporatedfirm,oratotalof$7.86 billion across all Delaware firms in the sample, over the three-day window around the election. The Delaware value premium is especially pronounced when managerial ownership is higher, in line with agency theory. We also investigate Trump's 2024 re-election and again find higher returns for Delaware firms, reinforcing our conclusion.

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