Off the Books, but on the Record: Evidence from Italy on the Relevance of Judges to the Quality of Corporate Law

Abstract:     
If corporate law matters to corporate governance and finance, then in order to assess its quality in any given country, one must look at corporate law "off the books," i.e., corporate law as applied by judges and other relevant public officials. This paper provides an assessment of Italian corporate law off the books based on analysis of a sample of 106 decisions by the Milan Tribunal, Italy's most specialized court in corporate law. The judges' quality is evaluated by looking at: (1) how deferential they are to corporate insiders; (2) how keen they are to understand, and possibly take into account, the real rights and wrongs underlying the case before them; (3) how antiformalistic their legal reasoning is; (4) how concerned they are about the effects their decisions may have on the generality of corporate actors.

The analysis casts a negative light on Milanese (and by extension, Italian) corporate law judges. It highlights egregious cases of deference to corporate insiders, especially with regard to parent-subsidiary relationships. Furthermore, only recently, and in any case still sporadically, have at least a few court's opinions been so drafted as to let the reader understand what the real dispute was and which party had really acted opportunistically. In any case, it appears to be rare for the court to take the substantive reasons for the dispute into any account. Cases are described, in which the court has adduced very casuistic arguments. And finally, there is no sign that the judges care what signals they send to corporate actors. Apparently, they are quite unconcerned about whether their decisions provide the right incentives for directors and shareholders.

Number of Pages in PDF File: 40

Keywords: Corporate Law, Corporate Law Judges, Shareholder Litigation, Italian Corporate Governance

JEL Classification: G38, K22

Accepted Paper Series