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

  • Kristoffel Grechenig

    ()

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

  • Michael Sekyra

    (Vienna University of Technology, Austria)

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    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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    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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