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

Grechenig, Kristoffel R.; Sekyra, Michael

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

International Review of Law and Economics, Vol. 31, No. 1, 2010

5 Pages Posted: 19 Mar 2011 Last revised: 12 Mar 2014

See all articles by Kristoffel R. Grechenig

Kristoffel R. Grechenig

Max-Planck-Institute for Research on Collective Goods

Michael Sekyra

Vienna University of Technology

There are 3 versions of this paper

Date Written: May 12, 2010

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 law suit. 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.

Keywords: Derivative shareholdersuits, Percentage limits, Collusion, Monitoring, Free Riding

JEL Classification: K22, K42, G30

Suggested Citation: Suggested Citation

Grechenig, Kristoffel R. and Sekyra, Michael, No Derivative Shareholder Suits in Europe: A Model of Percentage Limits and Collusion (May 12, 2010). International Review of Law and Economics, Vol. 31, No. 1, 2010, Available at SSRN: https://ssrn.com/abstract=1788919