There are two possible reasons. First, the paper addresses a question that has been debated for years: does Delaware law improve or reduce shareholder wealth? The question is important in the debate over whether the federal government should pass mandatory corporate law rules to protect investors. More than 50% of public firms in the US are ubject to Delaware law. Some scholars have claimed Delaware law allows managers to profit at shareholders' expense. Others claim that Delaware law protects investors and that its law, relative to other states, is likely to improve firm value. This article provides the first large-sample evidence of the value of Delaware firms, relative to other firms. The second possible reason it’s highly cited is that it is of interest to legal scholars—and legal scholars are pathologically fixated on finding a citation for everything, even the most pedestrian of observations. This means my likely audience consists mostly of heavy-citers—which gives me an advantage relative to other disciplines.

The primary contribution is to view corporate law as an intangible asset that can have either a positive or negative value. If corporate law rules matter to shareholders, it should affect the price they are willing to pay to own shares in particular firms. Thus, we should be able to learn something about corporate law rules by examining the price investors pay for the firm's securities. Examining firm value as a function of US corporate law rules was new.

This paper provides evidence that Delaware firms are more valuable and more likely to receive takeover bids. This is consistent with the theory that Delaware law improves firm value and suggests that Delaware law, relative to other states, is not harmful to shareholders. Also, it got me tenure.

Professor Robert Daines
New York University School of Law
New York, NY, USA