Europe's Corporate Governance Green Paper: Do Institutional Investors Matter?

Tilburg Law School Research Paper No. 014/2011

Lex Research Topics in Corporate Law & Economics Working Paper No. 2/2011

19 Pages Posted: 9 Jun 2011 Last revised: 13 Jun 2014

Christoph Van der Elst

Tilburg Law School; Ghent University-Universiteit Gent - Department of Business Law

Erik P. M. Vermeulen

Tilburg University - Department of Business Law; Philips Lighting - Legal Department; Tilburg Law and Economics Center (TILEC); Kyushu University - Graduate School of Law

Date Written: June 8, 2011

Abstract

The European Commission launched a Green Paper on corporate governance aimed largely at listed companies in April 2011. The Green Paper recognizes that institutional investors play a dominant role in the current financial markets, but it criticizes the short-term thinking and practice among these investors. Long-term and appropriate shareholder engagement is viewed as the linchpin of an effective corporate governance framework. The question arises, however, if institutional investors should be actively engaged if they lack the time, knowledge, and a financial incentive to do so. We introduce and briefly discuss “shareholder engagement costs” that policymakers should take into account when increasing shareholders’ rights and betting on institutional investors to protect companies against business failures. The engagement costs considered here are: (1) conventionalism/micro-management, (2) management distraction, (3) risk aversion and (4) lack of transparency.

Keywords: institutional investors, corporate governance, shareholder activism, shareholder rights, European Commission, Corporate Governance Green Paper

JEL Classification: K22

Suggested Citation

Van der Elst, Christoph and Vermeulen, Erik P. M., Europe's Corporate Governance Green Paper: Do Institutional Investors Matter? (June 8, 2011). Tilburg Law School Research Paper No. 014/2011; Lex Research Topics in Corporate Law & Economics Working Paper No. 2/2011. Available at SSRN: https://ssrn.com/abstract=1860144 or http://dx.doi.org/10.2139/ssrn.1860144

Christoph Van der Elst

Tilburg Law School ( email )

Tilburg, 5000 LE
Netherlands

Ghent University-Universiteit Gent - Department of Business Law ( email )

Universiteitstraat 4
Gent, B-9000
Belgium

Erik P.M. Vermeulen (Contact Author)

Kyushu University - Graduate School of Law ( email )

6-19-1, Hakozaki, Higashiku
Fukuoka, 812-8581
Japan

Tilburg University - Department of Business Law ( email )

Philips Lighting - Legal Department ( email )

Amstelplein 2
Amsterdam
Netherlands

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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