New research examines Delaware effect on cost of equity

BVWireIssue #155-1
August 5, 2015

A new study finds that firms incorporated outside their home state have a higher cost of equity than firms that incorporate in the state where they are located. The cost of equity can be 40 to 100 basis points higher than firms incorporated in their home state, say the authors of a new paper, “Incorporation Choice and Implied Cost of Equity.”

The authors also refute prior studies that document a “Delaware effect” on firm valuation. “Importantly, there is no statistical difference between Delaware incorporation and other non-home states of incorporation, which suggest the more important distinction is home state versus non-home state, rather than a Delaware effect.”

This paper was published on the Social Science Research Network. Economics and finance are social sciences, so this site contains all kinds of research, including issues related to business valuation. We urge readers to check it out.

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