Germany's Reluctance to Regulate Related Party Transactions

A chapter for Luca Enriques and Tobias H. Tröger, eds., The Law and Finance of Related Party Trans-actions (Cambridge University Press, Forthcoming)

SAFE Working Paper No. 202

26 Pages Posted: 26 Feb 2018

See all articles by Tobias H. Troeger

Tobias H. Troeger

Goethe University Frankfurt - Research Center SAFE; European Corporate Governance Institute (ECGI); European Banking Institute

Multiple version iconThere are 2 versions of this paper

Date Written: February 15, 2018

Abstract

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 15, 2018). A chapter for Luca Enriques and Tobias H. Tröger, eds., The Law and Finance of Related Party Trans-actions (Cambridge University Press, Forthcoming) ; SAFE Working Paper No. 202. Available at SSRN: https://ssrn.com/abstract=3129300

Tobias Hans Tröger (Contact Author)

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany
+49 69 798 34391 (Phone)
+49 69 798 34536 (Fax)

HOME PAGE: http://safe-frankfurt.de/research/all-researchers/researchers-details/showauthor/prof-dr-tobias-troe

European Corporate Governance Institute (ECGI) ( email )

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

HOME PAGE: http://www.ecgi.global/users/tobias-tr%C3%B6ger

European Banking Institute ( email )

Frankfurt
Germany

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