Law and Economics of Shareholder Rights and Ownership Structures: How Trivial are Shareholder Rights for Shareholders?
Christoph Van der Elst
Tilburg Law School; Ghent University-Universiteit Gent - Department of Business Law
February 15, 2010
TILEC Discussion Paper No. 2010-009
Tilburg Law School Research Paper No. 008/2010
Law and Finance theory stresses the importance of shareholder rights for the reliability and development of capital markets. Many European Parliaments picked up this corporate governance issue. We expand the analysis of Lele and Siems (2007) and show that the number of shareholder rights grew steadily in many countries over the last fifteen years. In particular the protection of shareholders against shirking of the board members and the officers increased significantly. The protection of minority shareholders against the expropriation of major shareholders remained unchanged. In light of these findings, it can be expected that after a time lag ownership concentration would decrease in continental Europe. However, our evidence is mixed. The analysis of the development of shareholder structures from different perspectives - ownership concentration, shareholder classes and ownership distribution - revealed only limited support for the Law and Finance arguments. The results cause serious doubts on the influence of shareholder rights on ownership structures and the development of liquid capital markets. That is not to say, shareholder rights have no added value and should be abolished. The mixed evidence suggests that other variables, like the presence of activist shareholders, might be much more influential than the development of shareholder rights.
Number of Pages in PDF File: 54
Keywords: ownership structure, law and finance, legal regulation, convergence
JEL Classification: G32, G34, K22
Date posted: February 15, 2010