Germany's Reluctance to Regulate Related Party Transactions

30 Pages Posted: 24 Feb 2018

See all articles by Tobias H. Troeger

Tobias H. Troeger

Leibniz Institute for Financial Research SAFE; European Corporate Governance Institute (ECGI); European Banking Institute

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Date Written: February 2018


Germany Inc. was an idiosyncratic form of industrial organization that put financial institutions at the center. This paper argues that the consumption of private benefits in related party transactions by these key agents can be understood as a compensation for their coordinating and monitoring function in Germany Inc. As a consequence, legal tools apt to curb tunneling remained weak in Germany from the perspective of outside shareholders. While banks were in a position to use their firm-level knowledge and influence to limit rent-seeking by other related parties, their own behavior was not subject to meaningful controls. With the dismantling of Germany Inc. banks seized their monitoring function and left an unprecedented void with regard to related party transactions. Hence, a “traditionalist” stance which opposes law reform for related party transactions in Germany negatively affects capital market development, growth opportunities and ultimately social welfare.

Keywords: Related Party Transactions, Germany Inc., Industrial Organization, Tunneling, Private Benefits of Control, Capital Maintenance, Group Law

JEL Classification: D23, D62, K22

Suggested Citation

Tröger, Tobias Hans, Germany's Reluctance to Regulate Related Party Transactions (February 2018). European Corporate Governance Institute (ECGI) - Law Working Paper No. 388/2018. Available at SSRN: or

Tobias Hans Tröger (Contact Author)

Leibniz Institute for Financial Research SAFE ( email )

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European Banking Institute ( email )


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