No derivative shareholder suits in Europe: A model of percentage limits and collusion |
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Authors: | Kristoffel Grechenig Michael Sekyra |
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Affiliation: | a Max Planck Institute for Research on Collective Goods Kurt-Schumacher-Strasse 10 53113 Bonn, Germany;b Vienna University of Technology, Vienna, Austria |
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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. |
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Keywords: | Derivative shareholder suits Percentage limits Collusion Monitoring Free riding |
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