Cronyism and Delaware Incorporation: An Examination on Excess Compensation | Zendy

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Cronyism and Delaware Incorporation: An Examination on Excess Compensation

Author(s) -

Qian Xie

Publication year - 2013

Publication title -

accounting and finance research

Language(s) - English

Resource type - Journals

eISSN - 1927-5994

pISSN - 1927-5986

DOI - 10.5430/afr.v2n4p60

Subject(s) - cronyism , compensation (psychology) , shareholder , executive compensation , business , finance , corporate governance , law , political science , psychology , social psychology , politics

This paper investigates whether Delaware incorporation relates to cronyism by examining excess director and CEO compensation. I find that excess director compensation is significantly and positively related to excess CEO compensation in both Delaware and non-Delaware firms. However, excess CEO compensation in non-Delaware firms is negatively associated with firm performance. The result indicates that cronyism does exist in non-Delaware firms but not in Delaware firms. Therefore, Delaware incorporation does not favor managers at the expense of shareholders.

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