On March 26, 2025, Delaware Governor Meyer signed into law Senate Bill 21 (“SB21”) updating Delaware’s corporate law. While there has been considerable discussion of whether the bill was beneficial or detrimental to shareholders, we show that there is no discernible effect on the shareholder value of companies incorporated in Delaware.

Some of the key provisions of SB21 include safe harbor protections for directors and officers, controlling shareholders, or control groups; liability protections for certain transactions or actions; pathways for application of the business judgment rule in place of the entire fairness standard for judicial review; and greater limitations on stockholder inspection rights for corporate records.

The legislation has been viewed as responsive to corporations seeking reform to Delaware’s corporate law in the wake of notable recent decisions, such as challenges to the fairness of Musk’s compensation at Tesla and the move by some corporations to reincorporate in other states. However, SB21 is not without its critics. A partner at Bernstein Litowitz described it as a “license to steal from institutional investors and pension funds” and “the most egregious corporate thuggish behavior I’ve seen since Musk.”[1] An attorney representing shareholders told Delaware lawmakers that the bill would protect Meta Platforms’ CEO and controlling shareholder from the potential liability that shareholders were investigating. A website by a coalition purportedly consisting of consumer rights groups, legal scholars, corporate governance specialists, and public interest advocates opposed the bill through a public campaign.[2]

SB21’s critics argue that the legislation will hurt shareholders. If so, one might expect this to be reflected in share prices for companies incorporated in Delaware. We examine the issue by comparing how the values of Delaware-incorporated companies (“DE Companies”) performed relative to other companies (“Non-DE Companies”).[3]

The Values of Both DE and Non-DE Companies Evolved Similarly

This event study covers the period starting with the introduction of SB21 in Delaware’s legislature on February 17, 2025, and ending with its passage and signing on March 26, 2025. Our analysis is based on the average return across all DE Companies and across all non-DE Companies in the S&P 500.[4] Accordingly, we do not examine the returns of specific companies or whether some companies benefit more or less from SB21 depending on, e.g., potentially lower litigation or insurance costs, more or less susceptibility to corporate governance malfeasance, likelihood of re-incorporation in other jurisdictions, or other reasons.

We find that the returns of DE Companies in the aforementioned period are no different from the returns of Non-DE Companies in the same period.

Besides having tested this result statistically, we also plot below the cumulative return of each company, where each dot represents the cumulative return of one company, measured along the vertical axis. The cumulative return of each DE Company and each Non-DE Company in the aforementioned period is shown in blue and green, respectively. This chart confirms our statistical analysis, showing that the cumulative returns of DE Companies were not distinguishably higher or lower than the cumulative returns of Non-DE Companies.

Figure 1: Cumulative Returns of DE Companies and Non-DE Companies

We also checked whether the difference between the two groups is statistically significant and found that the difference is not distinguishable from 0.0 percent. We also examined the stock returns of DE Companies with dual-share classes and did not find any statistical difference between that group and DE Companies without dual-share classes.

It is not possible to establish that DE Companies have underperformed Non-DE Companies in the period between the introduction of SB21 and when it was enacted.

We also examined whether DE Companies underperformed Non-DE Companies on specific dates with notable events related to SB21.[5] DE Companies underperformed Non-DE Companies on some days and overperformed on other days – in the aggregate, the difference is far from statistically different from 0.0 percent.

No Evidence that SB21 Has Hurt Shareholders.

This simple analysis does not support the perspective that the market viewed the passage of SB21 as negative for shareholders of DE-incorporated companies.

There are various possible reasons for this result.[6] For example, if the cost of switching the state of incorporation is low enough, then companies can switch easily between states, and their stock prices will not reflect whether they are currently incorporated in Delaware or not. Setting that aside, it is theoretically possible that DE Companies could be inherently less susceptible to corporate governance malfeasance than Non-DE Companies, although there is no reason to assume that is the case. Another possibility is that companies in the S&P 500 are not very likely to be at risk of corporate malfeasance. It is also possible that the market anticipated SB21’s introduction before it was proposed. Finally, it is possible that, in the balance of its benefits and costs, SB21 does not hurt shareholders.

ENDNOTES

[1]      https://www.linkedin.com/posts/jeroen-van-kwawegen-b543811_delaware-sb-21-hypothetical-a-pre-revenue-activity-7299151727914549248-oNRb/?rcm=ACoAAAFIRuUBBNXtP6T3LnWTZ4XEeAysMpQ9Du8

[2]      https://www.dandodiary.com/2025/02/articles/director-and-officer-liability/critics-launch-campaign-opposing-delaware-sb-21/

[3]      Our simplified event study compares the returns of equal-weighted portfolios of DE Companies and Non-DE Companies without controls for firm-specific risk factors such as exposure to market risk, size or other industry-specific performance.

[4]     We measure returns in excess of the market in accordance with common event study practice.

[5]     Those dates are February 17 when the bill was introduced, March 12 when Governor Meyer called for swift passage of the Bill, March 13 when the Delaware Senate passed the Bill, March 19 when the Bill moved out of the House committee, March 25 when the Delaware House considered amendments to the bill and passed the bill, and Governor Meyer signed it. Returns were measured on the next trading date for events occurring on a holiday or after-market hours. Because legislative proceedings would be public, we also considered that certain events began during trading hours but did not conclude until after trading closed – adjusting the analysis to include additional trading days did not change our findings.

[6]      Granted, this is a simple analysis without all the controls or matching of samples that would be normally necessary.

This post comes to us from Tiago Duarte-Silva, an economist with Charles River Associates and adjunct professor at Boston College, and Aaron Dolgoff, an economist with Charles River Associates. It is based on their recent article, “Were shareholders harmed by Senate Bill 21’s amendments to the Delaware General Corporation Law?”, available here.