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Title:No derivative shareholder suits in Europe: A model of percentage limits and collusion PDF Logo
Authors:Grechenig, Kristoffel
Sekyra, Michael
Issue Date:2010
Series/Report no.:Preprints of the Max Planck Institute for Research on Collective Goods 2010,15
Abstract: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.
Subjects:Derivative Shareholder Suits
Percentage Limits
Collusion
Monitoring
Free Riding
JEL:K22
K42
G30
Document Type:Working Paper
Appears in Collections:Preprints of the Max Planck Institute for Research on Collective Goods

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