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Do Delaware CEOs get fired?

Author

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  • Jagannathan, Murali
  • Pritchard, A.C.

Abstract

Critics have charged that state competition in corporate law, which Delaware dominates, leads to a “race to the bottom” making management unaccountable. We argue that Delaware corporate law attracts firms with particular financial and governance characteristics. We find that Delaware attracts growth firms in industries with more takeover activity. Delaware firms have smaller boards, and their directors are paid more and serve on more boards. In addition, Delaware firms attract greater institutional ownership. We also provide a bottom-line test of the race-to-the-bottom hypothesis by examining forced CEO turnover. After controlling for differences in firm characteristics, we find that firms incorporated in Delaware are more likely to terminate CEOs. We also find that that termination decision is less sensitive to poor performance. Overall, we see no clear pattern supporting the “race to the bottom” hypothesis.

Suggested Citation

  • Jagannathan, Murali & Pritchard, A.C., 2017. "Do Delaware CEOs get fired?," Journal of Banking & Finance, Elsevier, vol. 74(C), pages 85-101.
    • Handle: RePEc:eee:jbfina:v:74:y:2017:i:c:p:85-101
    DOI: 10.1016/j.jbankfin.2016.10.008
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    References listed on IDEAS

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    Cited by:

    1. Anne Anderson & Jill Brown & Parveen P. Gupta, 2017. "Jurisdictional competition for corporate charters and firm value: a reexamination of the Delaware effect," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 14(4), pages 341-356, November.
    2. Cumming, Douglas J. & Johan, Sofia Atiqah & Reardon, Robert S., 2021. "Governance and success in U.S. equity crowdfunding," CFS Working Paper Series 668, Center for Financial Studies (CFS).

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    More about this item

    Keywords

    Corporate governance; Charter competition; CEO turnover;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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