No derivative shareholder suits in Europe: A model of percentage limits and collusion
AbstractWe address one of the cardinal puzzles of European corporate law: the lack of derivate shareholder suits. We explain this phenomenon on the basis of percentage limits which require shareholders to hold a minimum amount of shares in order to bring a lawsuit. We show that, under this legal regime, managers will collude with large shareholders by means of settlements or bribes that impose a negative externality on small shareholders. Contrary to conventional agency models, we find that large shareholders do not monitor the management; as a consequence, there is no free riding opportunity for small shareholders.
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Bibliographic InfoArticle provided by Elsevier in its journal International Review of Law and Economics.
Volume (Year): 31 (2011)
Issue (Month): 1 (March)
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Web page: http://www.elsevier.com/locate/irle
Derivative shareholder suits Percentage limits Collusion Monitoring Free riding;
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