Creditors Versus Capital Formation: The Case Against the European Legal Capital Rules

Posted: 6 Jan 2002

See all articles by Luca Enriques

Luca Enriques

University of Oxford Faculty of Law; European Corporate Governance Institute (ECGI)

Jonathan R. Macey

Yale Law School

Abstract

This article presents a critical economic analysis of the European Union's legal capital rules as codified by the Second Directive. Professors Enriques and Macey explore the fundamental differences between United States and European Union approaches to the conflict between fixed and equity claimants and argue that the European Union should abandon its inefficient approach. The costs associated with the European legal capital rules - particularly costs to shareholders, creditors, and society as a whole - significantly outweigh any benefits accrued by creditors. The authors suggest that a public-choice theory best explains the existence of the European legal capital rules, in that certain influential interest groups benefit from the rules despite their inefficiency. In conclusion, this Article advocates that the European Union should abandon its current legal capital rules in favor of more flexible, contractarian rules in order to facilitate entrepreneurship and business development in European markets.

JEL Classification: K22

Suggested Citation

Enriques, Luca and Macey, Jonathan R., Creditors Versus Capital Formation: The Case Against the European Legal Capital Rules. Cornell Law Review, Vol. 86, No. 6, September 2001. Available at SSRN: https://ssrn.com/abstract=291471

Luca Enriques (Contact Author)

University of Oxford Faculty of Law ( email )

St Cross Building
St Cross Road
Oxford, OX1 3UL
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http:/www.ecgi.org

Jonathan R. Macey

Yale Law School ( email )

P.O. Box 208215
New Haven, CT 06520-8215
United States
+203-432-7913 (Phone)
+203-4871 (Fax)

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