Corporate Disclosure in a Competitive Environment - the Ecj's Axel Springer Case and the Quest for a European Framework for Mandatory Disclosure

Abstract

European Company Law requires both closely-held and listed companies to disclose their financial situation (annual accounts) to the general public. The European Court of Justice has recently decided that also competitors of a company are in the position to enforce this obligation. This gives rise to the question how the effects of disclosure in the capital market (towards investors and creditors) and the effects of disclosure in the product market can be aligned. In order to give a full account of the framework, both the legal rules on disclosure under EC law and the basic economic concepts on the interaction of product and capital markets are laid out. A decisive role is played by "competitive costs", i.e. the costs resulting from a disadvantage in the product market. The harmful effect of these competitive costs has also a major impact on the financial market because it prevents companies from deliberately disclosing sensitive data to existing and potential investors and creditors. Taking a closer look one finds out that there exist three basic situations where the efficiency aims in the product market and in the financial market clash: The access of competitors, suppliers or customers to "innovative" data, the abuse of a dominant market position in the course of "predatory pricing" and the mutual exchange of sensitive data in an oligopolistic setting.

An economic analysis of the interaction between product and financial markets leads several policy proposals: a first insight would be not to extend mandatory disclosure to non-incorporated market participants; a second step should be to dismantle full mandatory disclosure for closely-held companies, and a third step should be to provide specific rules for the above mentioned cases of "innovative" data, "predatory pricing" and "mutual information".

Keywords: European company law, competitive costs, capital and product markets, disclosure, innovative data, predatory pricing, mutual information, financial markets, mandatory disclosure, closely-held companies

JEL Classification: K22, K23, G38