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Does Delaware Incorporation Affect Executive Compensation? An Empirical Analysis

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  • Jiraporn, Pornsit
  • Kittiakarasakun, Jullavut
  • Chintrakarn, Pandej

Abstract

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.

Suggested Citation

  • Jiraporn, Pornsit & Kittiakarasakun, Jullavut & Chintrakarn, Pandej, 2012. "Does Delaware Incorporation Affect Executive Compensation? An Empirical Analysis," Review of Applied Economics, Lincoln University, Department of Financial and Business Systems, vol. 0(Number 1), pages 1-17, February.
  • Handle: RePEc:ags:reapec:143461
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    File URL: http://ageconsearch.umn.edu/record/143461/files/2-Pornsit.pdf
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    References listed on IDEAS

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