The Price of Delaware Corporate Law Reform

Abstract

In 2025, within a few weeks, Delaware legislators proposed and approved a major overhaul of the state’s corporate law code (SB 21). The new statute contains more permissive rules for transactions involving conflicted controlling shareholders and places new constraints on shareholder-plaintiffs with the intent to curb fiduciary litigation.

SB 21 has sparked an intense debate among scholars and practitioners. Critics contend that the reform facilitates excessive extraction of private benefits and was designed to appease powerful business interests at the expense of public investors. Supporters, in contrast, argue that the new rules are a much-needed correction to lower the cost of regulation and to reduce excessive litigation, ultimately benefiting all shareholders.

To shed some light on this debate, we conduct a series of event studies to measure the stock market’s response to SB 21. Our findings are consistent with the critics’ view that corporate law reform has reduced the shareholder value of Delaware companies. In particular, the market reaction suggests that Delaware’s choice to relax the rules on controller conflicts harmed investors in controlled companies and dual-class companies, where minority shareholders are more vulnerable.

Additional Information

Co-author: Roberto Tallarita (Harvard Law School)

Keywords: Delaware, corporate law, corporate governance, controlling shareholders, shareholder litigation, fiduciary duties, stock returns, event study

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Recommended citation: Kenneth Khoo and Roberto Tallarita. "The Price of Delaware Corporate Law Reform." Available at SSRN: https://ssrn.com/abstract=5318203
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