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De Facto Control: Applying Game Theory to the Law on Corporate Nationality

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  • Russell Stanley Q. Geronimo

Abstract

One unexamined assumption in foreign ownership regulation is the notion that majority voting rights translate to 'effective control'. This assumption is so deeply entrenched in foreign investments law that possession of majority voting rights can determine the nationality of a corporation and its capacity to engage in partially nationalized economic activities. The fact, however, is that minority stockholders can possess a degree of voting power higher than what their shareholding size might suggest. Voting power is not the same as voting weight and is not measured simply by the proportion or number of votes a stockholder may cast in a stockholder meeting. This paper proposes and demonstrates a method for calculating 'effective control' based on given voting thresholds and voting weights. It also shows instances where the 'effective control' of a foreign minority stockholder appears to comply with foreign equity limitations, but has a 'real' voting power grossly beyond the allowable threshold.

Suggested Citation

  • Russell Stanley Q. Geronimo, 2017. "De Facto Control: Applying Game Theory to the Law on Corporate Nationality," Papers 1712.09969, arXiv.org.
  • Handle: RePEc:arx:papers:1712.09969
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