IDEAS home Printed from https://ideas.repec.org/a/eee/irlaec/v31y2011i1p16-20.html
   My bibliography  Save this article

No derivative shareholder suits in Europe: A model of percentage limits and collusion

Author

Listed:
  • Grechenig, Kristoffel
  • Sekyra, Michael

Abstract

We 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.

Suggested Citation

  • Grechenig, Kristoffel & Sekyra, Michael, 2011. "No derivative shareholder suits in Europe: A model of percentage limits and collusion," International Review of Law and Economics, Elsevier, vol. 31(1), pages 16-20, March.
  • Handle: RePEc:eee:irlaec:v:31:y:2011:i:1:p:16-20
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0144-8188(10)00044-X
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Barclay, Michael J & Holderness, Clifford G, 1992. "The Law and Large-Block Trades," Journal of Law and Economics, University of Chicago Press, vol. 35(2), pages 265-294, October.
    2. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-795, December.
    3. Barclay, Michael J. & Holderness, Clifford G., 1989. "Private benefits from control of public corporations," Journal of Financial Economics, Elsevier, vol. 25(2), pages 371-395, December.
    4. Sergey Stepanov, 2010. "Shareholder access to manager-biased courts and the monitoring/litigation trade-off," RAND Journal of Economics, RAND Corporation, vol. 41(2), pages 270-300.
    5. Stremitzer, Alexander, 2008. "Plaintiffs exploiting Plaintiffs," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 224, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    6. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    7. Admati, Anat R & Pfleiderer, Paul & Zechner, Josef, 1994. "Large Shareholder Activism, Risk Sharing, and Financial Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1097-1130, December.
    8. repec:hrv:faseco:30728046 is not listed on IDEAS
    9. Grossman, Sanford J & Hart, Oliver D, 1983. "An Analysis of the Principal-Agent Problem," Econometrica, Econometric Society, vol. 51(1), pages 7-45, January.
    10. Demsetz, Harold, 1986. "Corporate Control, Insider Trading, and Rates of Return," American Economic Review, American Economic Association, vol. 76(2), pages 313-316, May.
    11. repec:hrv:faseco:30747165 is not listed on IDEAS
    12. Luigi Zingales, 1995. "What Determines the Value of Corporate Votes?," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 1047-1073.
    13. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Derivative shareholder suits Percentage limits Collusion Monitoring Free riding;

    Lists

    This item is featured on the following reading lists or Wikipedia pages:
    1. Wikipedia:Löschkandidaten/20. Juni 2016 in Wikipedia German ne '')

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:irlaec:v:31:y:2011:i:1:p:16-20. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/irle .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.