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 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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Bibliographic InfoPaper 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.
Date of creation: May 2010
Date of revision:
Collusion; Derivative Shareholder Suits; Percentage Limits; Monitoring; Free Riding;
Find related papers by JEL classification:
- K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-09-03 (All new papers)
- NEP-BEC-2010-09-03 (Business Economics)
- NEP-EUR-2010-09-03 (Microeconomic European Issues)
- NEP-LAW-2010-09-03 (Law & Economics)
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