The Disappearing Delaware Effect

Abstract

Refining and extending the methodology introduced by Daines (2001), I present evidence that firms incorporated in Delaware were worth 2-3% more than non-Delaware firms during the period 1991-1996, but not significantly more after 1996. I present two potential explanations for this "disappearing" Delaware effect. First, three takeover contests from the mid-1990s - Younkers, Wallace Computer, and Circon - might have strengthened the poison pill in Delaware and solidified the Just Say No defense in ways that eliminated Delaware's distinctiveness as a takeover-friendly jurisdiction. Second, exogenous trends, notably the increase in stock compensation during the 1990s, might have made takeover law no longer a binding constraint in many M&A transactions. I find some support in the empirical evidence for both of these explanations.

Keywords: Delaware, Takeovers, Mergers & Acquisitions

JEL Classification: G30, G34, K22