A Contractual Approach to Discipline Self-Dealing by Controlling Shareholders

53 Pages Posted: 28 May 2014 Last revised: 30 Jan 2015

See all articles by María Gutiérrez Urtiaga

María Gutiérrez Urtiaga

Universidad Carlos III de Madrid-Departamento de Economía de la Empresa; European Corporate Governance Institute (ECGI)

Maria Isabel Sáez Lacave

Universidad autonoma de Madrid, Faculty of Law

Date Written: May 22, 2014

Abstract

We analyze systematically the legal regulations on self-dealing transactions (where controlling shareholders are an interested party to transactions undertaken by the firm) and compare the outcomes produced by these regimes, both in terms of total welfare generated by the firm, and of minority expropriation, with the outcome that can be achieved with a contractual solution. We prove that investment eciency and welfare can be increased by letting the interested parties enter into long-term contracts regulating private benefit extraction and, as an example, we propose a simple contract based on the use of options that is more efficient than existing regulations.

Keywords: Self-dealing; Minority Expropriation; Private Beneffits; Corporate Governance; Corporate Law

JEL Classification: G32; G34; K22

Suggested Citation

Gutiérrez Urtiaga, María and Sáez Lacave, Maria Isabel, A Contractual Approach to Discipline Self-Dealing by Controlling Shareholders (May 22, 2014). European Corporate Governance Institute (ECGI) - Law Working Paper No. 138/2010, Available at SSRN: https://ssrn.com/abstract=2440663 or http://dx.doi.org/10.2139/ssrn.2440663

María Gutiérrez Urtiaga (Contact Author)

Universidad Carlos III de Madrid-Departamento de Economía de la Empresa ( email )

Calle Madrid 126
Getafe, 28903
Spain
+34-91 624 58 40 (Phone)
+34-91 624 96 07 (Fax)

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Maria Isabel Sáez Lacave

Universidad autonoma de Madrid, Faculty of Law ( email )

C/ Kelsen 1
Madrid, 28049
Spain

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