Does Delaware Incorporation Encourage Effective Monitoring? An Examination on Director Compensation

Qian Xie

Abstract


Delaware incorporation is popular among publicly traded firms in the United States. However, the question of whether Delaware incorporation favors shareholders is an on-going debate. This paper is the first attempt to examine director compensation by considering the role of state of incorporation. First, Delaware firms pay their directors more compensation than non-Delaware firms. Second, Delaware firms tend to hold more meetings per year than non-Delaware firms. Finally, among Delaware firms, the changes of director cash compensation, equity compensation, and total compensation are positively related to the change of shareholder wealth. The results not only indicate that Delaware incorporation appears to encourage effective board monitoring but also support the view of “race to the top” on Delaware incorporation.

Full Text: PDF DOI: 10.5430/ijfr.v4n4p26

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This work is licensed under a Creative Commons Attribution 3.0 License.

International Journal of Financial Research
ISSN 1923-4023(Print) ISSN 1923-4031(Online)

 

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