Which Related Party Transactions Should Be Subject to Ex Ante Review? Evidence from Germany

56 Pages Posted: 11 Mar 2019

See all articles by Andreas Engert

Andreas Engert

Freie Universität Berlin, Department of Law; European Corporate Governance Institute (ECGI)

Tim Florstedt

EBS Law School

Date Written: March 11, 2019

Abstract

The amended EU shareholder rights directive introduces a comprehensive regime of ex ante review for potentially conflicted transactions between listed companies and their major shareholders, downstream entities, and managers. Such ‘related party transactions’—if considered material—will have to be evaluated in advance by the board of directors, the shareholders meeting, or the stock market. The paper offers an empirical basis for implementation in Germany and other continental European jurisdictions that lack experience with an ex ante procedural approach to related party transactions. Besides documenting ownership in and shareholdings of German listed companies, we use hand-collected data based on IAS 24 reporting of related party transactions to estimate the number of companies affected by different materiality thresholds based on accounting assets, sales, market capitalisation, and other financials. The main recommendations derived from the analysis are to use more than one single quantitative criterion, to adopt a more generous standard for transactions with downstream entities, and to abstain from imposing a specialised threshold for transactions with managers.

Keywords: related party transactions, shareholder rights directive, Germany

JEL Classification: G32, G34, G35, K22

Suggested Citation

Engert, Andreas and Florstedt, Tim, Which Related Party Transactions Should Be Subject to Ex Ante Review? Evidence from Germany (March 11, 2019). European Corporate Governance Institute (ECGI) - Law Working Paper No. 440/2019. Available at SSRN: https://ssrn.com/abstract=3350356 or http://dx.doi.org/10.2139/ssrn.3350356

Andreas Engert (Contact Author)

Freie Universität Berlin, Department of Law ( email )

Boltzmannstr. 3
Berlin, 14195
Germany

European Corporate Governance Institute (ECGI) ( email )

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

Tim Florstedt

EBS Law School ( email )

Gustav-Stresemann-Ring 3
Wiesbaden, 65189
Germany

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