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No Derivative Shareholder Suits in Europe – A Model of Percentage Limits and Collusion

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  • Kristoffel Grechenig

    ()
    (Max Planck Institute for Research on Collective Goods, Bonn)

  • Michael Sekyra

    (Vienna University of Technology, Austria)

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    Abstract

    We address one of the cardinal puzzles of European corporate law: the lack of derivate share-holder suits. We explain this phenomenon on the basis of percentage limits which require share-holders 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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    File URL: http://www.coll.mpg.de/pdf_dat/2010_15online.pdf
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    Bibliographic Info

    Paper provided by Max Planck Institute for Research on Collective Goods in its series Working Paper Series of the Max Planck Institute for Research on Collective Goods with number 2010_15.

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    Date of creation: May 2010
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    Handle: RePEc:mpg:wpaper:2010_15

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    Related research

    Keywords: Collusion; Derivative Shareholder Suits; Percentage Limits; Monitoring; Free Riding;

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