Cross-firm empirical evidence · DExit reincorporation wave
Since the Tornetta ruling, scores of U.S. public companies have moved their state of incorporation — most to Nevada, the policy story to Texas. We measured the stock-price reaction the day each move was announced. Across every test and every size cut, the average abnormal return is statistically indistinguishable from zero. A null here is neutral evidence: it neither confirms a Texas penalty nor a Delaware-exit premium, and the design is honestly underpowered for the small effects the literature expects.
Every interval crosses zero. The highest-signal read — large, liquid firms where idiosyncratic noise is lowest — sits closest to the line. Figures hydrate from the canonical dataset; contested denominators are flagged in the data-lock panel at the foot of the page.
Each step removes noise, not signal — from every documented move down to the firms with clean, tradable price histories the model can actually measure.
Start with every U.S. public company we can document changing its state of incorporation since the Tesla vote. Keep the genuine movers. Narrow to the ones with enough daily stock-price history to measure a reaction. What's left is the cohort. The Texas companies that never moved become the comparison group — the control.
The study is a treated-versus-never-treated comparison. Comparing a mover to a near-identical Texas firm that stayed put is what isolates the effect of moving.
| Group | Role | n | What it is |
|---|
Most chose Nevada. Texas is the next-largest destination and the policy story behind SB 29. A handful went the other way — into Delaware — the counterflow that any honest tracker has to show.
For each mover we line up its return on announcement day against what the market model says it should have done, using a long pre-event window to set the baseline. The gap is the abnormal return.
If the S&P is up 1% and Tesla — which usually swings about twice as hard — is up 1.8%, that's roughly expected. If Tesla instead jumped 4% the day it announced something, the extra ~2.2% is the "abnormal return": the part attributable to the news, not the market. If reincorporating mattered to investors, these gaps would cluster away from zero. Five different statistics ask the same question; all say no signal.
One-factor market model on the pre-event estimation window; no event-day data leaks into the baseline. Day 0 is the first SEC-filed disclosure of the proposal.
The benchmark is the single-factor market model, estimated by OLS on the pre-event window:
where \(r_{i,t}\) is firm \(i\)'s daily return, \(r_{M,t}\) the market benchmark, \(t_0\) the announcement trading day, \(L\) the estimation length and \(g\) the gap before the event. The day-0 abnormal return is the realized minus the model-fitted return:
Patell standardized statistic
with \(\widehat{\sigma}_i^2\) the estimation-window residual variance (Patell 1976). Cohort inference uses a sign test \(K\sim\mathrm{Bin}(n,\tfrac12)\), a one-sample \(t\)-test of \(\mathbb{E}[\widehat{\mathrm{AR}}]=0\), and a rank test across destinations.
Two one-sided tests (TOST) evaluate equivalence against a pre-set margin \(\pm\delta\). The null is non-equivalence; rejecting it requires
A non-significant TOST (large \(p\)) fails to establish equivalence — it does not affirm it. Minimum detectable effect at power \(1-\beta\):
The dots are the average reaction; the bars are the uncertainty. Every bar crosses zero. The cleanest read — large-cap, low noise — sits dead-centre.
| Sample | n | Mean AR | Median | t-test p | Patell Z | Verdict |
|---|
Texas's headline reforms are opt-in. A firm can move to Texas and adopt the derivative-suit threshold (§21.552), the shareholder-proposal threshold (§21.373), both, or neither. The choice — not the destination — is where the governance content lives. Every cell below is verified to the firm's own operative or proposed instrument on EDGAR.
§21.552 lets a Texas company require that whoever sues the board on the company's behalf actually own a meaningful stake — up to 3% of shares. §21.373 lets it require a similar stake before a shareholder can force a proposal onto the ballot. Both raise the bar for small activists. Moving to Texas doesn't impose either one automatically; the company has to write it into its charter or bylaws. Most movers took neither.
| Firm | Status | §21.552 derivative | §21.373 proposals | Source instrument |
|---|
§21.552(a)(3) sets a derivative-standing floor measured on outstanding shares; the statute caps the electable threshold at 3% (a ceiling on the corporation's election), and the elected figure becomes the plaintiff's standing floor. §21.373 sets a shareholder-proposal threshold measured on voting shares — the lesser of \$1,000,000 in market value or 3% of voting shares, with a holding period. Different denominators, different bills (SB 29 vs SB 1057), different elections. Reading "elects §21.419" (business-judgment codification) as a §21.552 threshold election is a category error the verification pass specifically caught and reversed.
A centerpiece earns trust by stating its own limits first. Two things: the inference caveats, and an open data-reconciliation flag a reviewer should see before citing any denominator.
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