Financial tunnelling and the revenge of the insider system: how to circumvent the new European corporate governance legislation

Tom Kirchmaier () and Jeremy Grant

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: In this paper, we document how European companies can use financial tunnelling to the disadvantage of minority shareholders, despite improved legislation directed at eliminating such activities. In four case studies, two German and two Italian, we document how newly established corporate governance standards were successfully circumvented by dominant shareholders, major financial institutions, politicians, and in the worst case the regulator. These cases demonstrate that for effective Corporate Governance to work, one not only has to change the law, but even more importantly, one has to ensure the widespread acceptance of new rules. The litmus test of corporate governance reforms in any country is whether the rules are applied objectively in situations where powerful elites perceive they are disadvantaged under the new regulations.

Keywords: financial tunnelling; minority shareholders; mandatory bid threshold; corporate governance; Europe (search for similar items in EconPapers)
JEL-codes: G32 G34 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2005-03
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:13324

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