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No derivative shareholder suits in Europe: A model of percentage limits and collusion

Kristoffel Grechenig and Michael Sekyra

International Review of Law and Economics, 2011, vol. 31, issue 1, 16-20

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.

Keywords: Derivative; shareholder; suits; Percentage; limits; Collusion; Monitoring; Free; riding (search for similar items in EconPapers)
Date: 2011
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Handle: RePEc:eee:irlaec:v:31:y:2011:i:1:p:16-20